Weakened tax base focus for candidates

NASHVILLE -- Tennessee's next governor likely can avoid a "broad-based tax increase" but will have to remain vigilant about further weakening of the state's current tax base, according to state Revenue Commissioner Reagan Farr.

"I think they can make it through the first term without a broad-based tax increase if they are willing to continue the process Gov. Phil Bredesen started of addressing loopholes and inequities in the tax code, but they can't afford further erosion of the tax code," Mr. Farr said.

Each year, the Democratic Bredesen administration pushes legislation aimed at shutting down tax loopholes.

Mr. Farr also said that given the current sluggish state of revenues in the wake of the recession, "it's very unrealistic to talk about cutting taxes in the foreseeable future. And the main reason why is we are collecting over $1 billion less in tax revenue today than we were in 2008. At the same time, we will have spent over $1 billion in the reserves that Gov. Bredesen and the legislature set aside."

Republicans Bill Haslam, Ron Ramsey and Zach Wamp as well as Democrat Mike McWherter all say in their campaigns that they don't plan to push for tax increases and talk up their desire to cut or eliminate taxes. Gov. Bredesen is term-limited and can't run for a third term.

Depending on the candidate, areas under discussion for cuts or elimination include the state's 6 percent Hall Income Tax on interest and stock dividends and the state's inheritance tax. Some are talking about reducing the franchise and excise taxes for small businesses.

But Mr. Farr said he thinks that should be precluded in the immediate future given the need to grow the economy and revenues while replenishing state reserves.

"Any talk of cutting taxes at this point creates the false presumption that that will be an option in the foreseeable future," the commissioner said.

Lt. Gov. Ramsey, of Blountville, said he believes in "supply-side economics. I think Ronald Reagan proved you can reduce taxes and increase revenue. The Democrats never have caught on to that."

He said the inheritance tax is one example.

"We literally have people leaving this state so that they don't die here," he said. "It's a great place to live, a terrible place to die."

But he said he will be "realistic" about cutting the Hall Income Tax and hopes to eliminate it for people 65 and older.

The state collected $222 million from the Hall tax in the last budget year, according to Revenue Department figures. Mr. Farr noted that two-thirds of it is shared with local governments.

"We'll walk through that when we get to it," Lt. Gov. Ramsey said. "I really hadn't thought that through completely. I'm always one not to push unfunded mandates on local governments. I feel confident I'll find a way to keep local governments whole."