June 23, 2004

I Told You So

If you've followed the state's political battles over taxes and the state budget in recent years, you'll remember that the previous governor and his allies who were pushing for a state income tax blamed the state's declining bond rating on the state's lack of an income tax. But others pointed to the failure of that governor, Don Sundquist, to restrain the growth of spending to a fiscally sound growth rate.

Tennessee still doesn't have a state income tax. But it has a balanced budget. and Standard & Poor's just raised Tennessee's bond rating. Looks like we were right, he and the rest of the pro-income tax folks were wrong.

S&P says it raised Tennessee's bond rating in part because of the state's "structurally balanced fiscal 2005 budget, which does not rely on onetime revenues and conservatively budgets revenue growth."

As I wrote three years ago in a column for the Nashville City Paper:

Sundquist and others who favor an income tax claim the lack of an income tax is a key reason Tennessee’s bond rating is declining.

Nonsense.

There is no causal connection between the existence of a state income tax and a high bond rating.

Let me repeat that: having or not having a state income tax has nothing to do with our state’s bond rating.

Tennessee achieved a very high AAA bond rating during the administration of Lamar Alexander – and we had no income tax. We maintained it through the Ned Ray McWherter years and the first five years of the Sundquist administration – without an income tax.

I predicted that Tennessee’s bond rating "will start to improve just as soon as the governor, who spent his first five years in office raiding reserve funds to fund recurring programs, stops proposing budgets that spend more than the tax code can produce."

Sundquist never did. But his successor, Gov. Phil Bredesen, has proposed and passed fiscally sound budgets that rely on spending restraint rather than tax increases and don't use one-time funds for recurring programs. And .... whaddya know ... the state's bond rating is indeed rising.

Just as those of us who opposed the income tax said it would.