April 10, 2004

Bredesen-Naifeh Tax Hike Called Fiscally Irresponsible

Exclusive
NASHVILLE - Dr. Jesse Cannon, the Tipton County medical doctor challenging powerful House Speaker Jimmy Naifeh's bid for re-election to the state legislature, issued a statement today condemning a Naifeh-backed plan for a stealth tax increase on Tennessee businesses as fiscally irresponsible.

Dr. Cannon said the $75 million tax increase on Tennessee businesses would "result in future decreases in the revenue stream," and "would result in a revenue shortfall and budget deficits in the future."

The stealth tax increase was proposed by Gov. Phil Bredesen and is being pushed by Naifeh and most of the Democratic leadership in the House despite the governor's promise - and the House Democratic Caucus' promise - to balance the next fiscal year's budget without increasing taxes,

The Bredesen-Naifeh stealth tax increase, which first came to light on Thursday, will cost Tennessee business an estimated $75 million more in excise taxes in the fiscal year that starts July 1, if the legislation (House Bill 3529 and Senate Bill 3427) passes. The legislation would "decouple" the state's excise tax depreciation schedule from the federal depreciation schedule (for depreciation of capital investments by business) despite the governor's own solemn promise to balance this year's budget without resorting to tax increases.

Here is Dr. Cannon's complete statement on why that is fiscally irresponsible for the long term:

Supporters of HB 3529 are quick to point out that "decoupling" the state from the federal depreciation method, will increase state revenues $75 million this year. What they are not so eager to address is the fact that this would be a one-time acceleration in revenues and that the change would also result in future decreases in the revenue stream. These decreases would occur for the following reasons:

The $75 million dollar acceleration in revenue is actually composed of funds that the state would have received over the next few years if the depreciation method was not to change. This change would give the state $75 million dollars to help balance this year's budget but would result in a revenue shortfall and budget deficits in the future.

Also, the $75 million dollar increase in not guaranteed. The increased administration cost incurred by businesses having to deal with both a federal and state depreciation rates would increase the amount of expenses deducted by businesses. These deductions would lessen the taxes being paid and result in collections from the proposed change coming in less then than estimated $75 million. Also there would have to be an increase in the manpower costs of the State calculating and overseeing the collection of a tax based on a depreciation method different from the method required by the Federal government. The proposed change could actually lead to additional costs in this year's budget.

For these reasons I can not support HB 3529 and believe that the long term ill effects both to businesses and the State are far too costly to justify any one time acceleration in revenue. I believe that State Government could avoid these types of risky policy changes if our representatives would be open to the process of having bills subject to comment and review by professionals in the field before final passage of the bill.

State government will continue to look for this type of quick fix answers until they are willing to start forcing themselves to live within their means. The growth of government must be stopped and actual cuts in the state budget must be made before we can begin moving State government toward a sounder financial footing.

Dr. Jesse Cannon
Candidate for State Representative
District 81