NASHVILLE -- Gov. Bill Haslam has some advice for eager fellow Republicans in the state Legislature who plan to push tax cuts in the session that begins in January.
They need to find cuts in government operations to make up the revenue losses.
"I think for me ... any discussion about changes to the revenue in the state should be part of a broader discussion that also includes the state's expense structure," Haslam told reporters on Monday.
Haslam said "it's easy to talk about the revenue part, then we talk about the expense part it gets a little harder."
He said as a Republican, "I believe in cutting taxes. We've cut taxes since we've been here. We also believe in balancing the budget. And I think it's important when you're talking making any changes to revenue in the state, what are the commensurate changes you're going to make in the expense structure as well?"
Several lawmakers have already said they plan to renew their push to phase out Tennessee's Hall income tax on stock dividends and interest on taxable bonds.
Meanwhile, House Majority Leader Gerald McCormick, R-Chattanooga, and Senate Majority Leader Mark Norris, R-Collierville, said last week lawmakers should have a broader discussion about tax reform in general.
The logical place they suggest it start is on lowering Tennessee's sales tax -- one of the nation's highest -- from 7 percent to 6.75 percent.
Eliminating the Hall income tax and lowering the state's sales tax would each result in about a $250 million annual loss to the state budget.
In the last fiscal year ending June 30, Haslam was forced to scrap planned pay raises for teachers and state workers because tax revenues fell substantially below projections. In fact, that resulted in the state having to cut spending and use reserve funds to make up for the $276 million shortfall. And losses last year manifest themselves in this year's budget.
The problem was largely due to a sharp fall off in franchise and excise tax collections.
So far this year revenues are running above projections, but Haslam has noted most new revenues are absorbed by health care and education spending growth.
McCormick said Haslam's take on the issue is a "fair" one.
"Those of us who are trying to cut taxes either need to see where the revenue is going to come from and either make up the lost revenue or see that the natural growth of revenue will be enough to replace that," he said. "And I don't think we know that yet. Or come up with some cuts in government.
"I don't have those cuts ready to go yet, but I think if we do get to that point that we do need to be ready to do that," McCormick said. "I don't have any disagreement with his statement."
Sen. Mark Green, R-Clarksville, who pushed a phase out of the Hall tax last session, said he agrees.
Green noted his plan to phase out the Hall is contingent on a year to year assessment that state and local governments' finances are capable of handling reductions. He said he also has in mind a reworking of franchise and excise business taxes but was not yet ready to delve into details.
Those business taxes taxes in the view of one legal expert took a major hit when a major drug manufacturer that operated a Tennessee-based distribution center fled the state to Mississippi to avoid taxes here.
State voters last week approved a new constitutional amendment banning a state income tax, which has never existed and is already banned by constitutional language.
It's been 12 1/2 years since Tennessee legislators last approved a major tax increase -- a penny boost in the state's sales tax. Some other lawmakers have been quietly discussing closing off some of the $3.9 billion worth of exemptions from the state sales tax.
Contact staff writer Andy Sher at firstname.lastname@example.org or 615-255-0550.