NASHVILLE -- Gov. Phil Bredesen warned Thursday the state may have to cut employees' salaries by 5 percent if lawmakers reject his plan to eliminate a sales-tax cap on most single big-ticket items costing above $3,200.
The $85 million it would raise is needed to plug a state budget gap, Gov. Bredesen told reporters. Without it, he said, "we'd probably have to do an across-the-board salary reduction. And this was sitting out there as an exception that I think is not really justified by any public policy."
Gov. Bredesen unveiled the plan to top lawmakers on Wednesday, saying it was needed to help close a new $105 million budget shortfall. It effectively calls for boosting the current state sales tax from 7 percent to 9.75 percent on the portion of a single big-ticket item costing above $3,200.
The plan specifically excludes the most common purchases made by consumers -- motor vehicles, manufactured homes and boats. While it would affect luxury items such as jewelry, Gov. Bredesen acknowledged it is probably "more of a business tax," affecting areas such as high-end furniture and computer sales.
It has already set up a confrontation with Senate and House Republican leaders, including Republican Lt. Gov. Ron Ramsey, R-Blountville, the Senate speaker who is running to succeed Democrat Bredesen as governor.
The lieutenant governor showcased his opposition before more than 200 tea party activists assembled at Legislative Plaza on Thursday afternoon.
"Just yesterday Gov. Bredesen proposed an $85 million tax increase here in the state of Tennessee. It's going to be on you all," Lt. Gov. Ramsey warned as the activists booed. "It's going to be on small businesses. Let me assure you the state Senate under my leadership is going to push back."
He earlier told reporters, "I do anticipate making more cuts. This bill as presented would take $85 million out of the economy and mostly from small businesses that buy those backhoes and Bobcats to create jobs. ... It couldn't be worse timing."
The Bredesen tax proposal:
* The practical effect of the governor's plan would be to increase the sales tax from 7 percent to 9.75 percent on the portion of big-ticket items costing more than $3,200.
* Legally speaking, the proposal would remove the single-item cap on the local sales tax for that portion of purchases above $3,200 and direct it into state coffers.
* Under current law, cities and counties can levy a local option sales tax of up to 2.75 percent on the first $1,600 in value of a single item. In 1999-2000, state lawmakers moved the local $1,600 cap to $3,200 and directed the additional funds to the state. The governor's plan removes the cap on purchases over $3,200 but would exclude motor vehicles, boats and manufactured homes. The tax would affect luxury items but impacts businesses most directly.
Asked if he would consider cutting state employees' salaries, Mr. Ramsey said, "everything is on the table. I'd say that. I'm not going to sit here and speculate where it's going to come from."
Tennessee State Employees Association co-interim executive director Robert O'Connell said the "increased hole in the budget needs to be plugged by some other means than extracting it from the bank accounts of struggling state employees."
House and Senate Democratic leaders voiced unease over the proposal, saying a good number of Republicans, who hold majorities in the House and Senate, must support it if they are to get behind it themselves.
"If the Senate's not going to go along with it, we don't need to spend a whole lot of time in the House" on it, said House Minority Leader Gary Odom, D-Nashville.
Senate Minority Leader Jim Kyle, D-Memphis, said if Lt. Gov. Ramsey and Republicans won't back the sales tax cap removal, he believes "cuts and dipping into reserves" are in store.
Meanwhile, the lieutenant governor continued to raise objections to about an estimated $50 million in taxes Gov. Bredesen previously proposed to salvage state jobs and services. He also said there may not be support in the Senate for another $21 million plan to increase driver license fees to save jobs in the highway patrol jobs and driver license stations.