Tennessee, like most states around the country, continues to struggle with steadily declining tax revenue and the deepening level of cuts in needed state services necessitated by that decline. So it is lamentable, though hardly surprising, that state Senate majority leader and gubernatorial hopeful Ron Ramsey is already digging in his heels in opposition to Gov. Phil Bredesen’s proposal to avoid a new round of cuts by lifting a state sales tax cap on large purchases.
The governor’s proposal makes good sense. It would produce roughly $105 million by eliminating the cap on the 2.75 percent portion of the sales tax on large purchase. That portion is not applied to single-item purchases that cost more than $3,200. The governor proposes to add that tax increment to the full value of such purchases, along with the 7 percent base sales tax.
His proposal would specifically exempt cars, boats and manufactured homes, which ordinary workers typically buy. Rather, it would apply to higher-value luxury items and other large purchases, including computers, equipment and machinery.
There is ample evidence that the additional revenue is needed. Though the economy is finally beginning to gain ground, at least on a national level, Tennessee’s tax slippage clearly continues. The latest decline in projected March collections marked the unheard-of 22nd consecutive month of negative growth in projected tax revenue, according to Tennessee Finance and Administration Commissioner Dave Goetz. It brought the total shortfall in projected tax revenue to $244.1 million.
The state’s projected collections, to be sure, have trended downward under the lagging economy since January 2008 — the second month of a recession that has now become the steepest and longest downtown since the Great Depression of the 1930s.
The duration of the precipitous revenue drop-off has forced the governor to cut over $1.4 billion from the state budget in the two consecutive years that began in July 2008. In addition to those cuts, the governor has pumped in $300 million of the state’s rainy-day reserve fund — which stood at $750 million when the recession began — into the 2008-09 and 2009-10 fiscal year budgets, and he proposes to put $170 million from the Medicaid/TennCare reserve fund into the 2010-11 fiscal year’s operating budget.
He also has cut funding to state agencies by 21 percent, and he will have frozen state employees’ wages for 3.5 years when he leaves office next January.
Moreover, he will have cut the number of state employee positions by 2,359 since 2009, not including reductions in higher education. The first 1,572 came under a voluntary retirement incentive program; the balance came at the end of a figurative ax on the number of employees left.
One could not say that the governor has failed to impose harsh cuts to keep Tennessee solvent in the dire economic straits he had to confront. Against the magnitude of such cuts, his new proposal to make a relatively modest, narrowly targeted, tax adjustment in a controlled corner of the sales tax landscape seems kind and humane. The state already applies its 7 percent sales tax against single-item purchases, and applies the 2.75 percent add-on after the local sales tax of that amount falls off at $1,600. Continuing that add-on above the $3,200 level would not affect most ordinary families.
Gov. Bredesen’s alternatives for closing the widening revenue gap through a limited sales tax provision are severely restricted by his desire to minimize the impact of new cuts. He wants to protect the state’s vital services — say, for children’s services and veterans aid — and keep the state’s rainy-day fund at the level necessary to meet state emergencies and to protect the improved bond rating he has earned.
Other options would be far more onerous. One example he cited would be to cut employees’ salaries by 5 percent. But that would be needlessly cruel to state workers — and their families — on top of the three-year wage freeze and added work-loads they already have endured.
Lt. Gov. Ramsey apparently isn’t bothered by the potential new burden on state employees or lost services. Pandering to a Tea Party gathering on the Capitol’s Legislative Plaza on Thursday, he wrongly told the assembly that the tax increment would “be on you all.”
“It’s going to be on small business,” he declared. “Let me assure you the state Senate under my leadership is going to push back.”
We get the politics of his remarks, but his is a myopic, small-bore view against the fiscal problems that the governor already has adroitly managed. And it ignores the bigger fiscal problems that yet loom for the next governor when the second year of the Obama administration’s several billion dollars in stimulus aid to this state fall away in 2011.
If Mr. Ramsey’s objection to the governor’s revenue proposal are indicative of his limited fiscal vision and planning abilities, we shudder to imagine the damage he will do to Tennessee’s future if he makes it to the governor’s office next year.