By Joe White and Skip Cauthorn (The Nashville City Paper)
State Sen. David Fowler Tuesday proposed a new either/or tax that would require a referendum to go into effect.
Voters in November would be asked to choose between a one percent increase in state sales tax rate and a constitutional convention, or a flat-rate 3.25 percent income tax.
The Chattanooga Republican told the Senate Finance Committee that either plan would raise about $1 billion.
The flat-rate income tax would be accompanied by some level of sales tax reduction on food.
Senate Finance delayed any decision until at least next week. Fowler’s background material lacked several definitive figures, including the amount of reduction in the sales tax on food.
Under Fowler’s plan a sales tax would go into effect July 1 to fund the 2002-03 fiscal year budget.
Nov. 2 voters would choose whether to continue the sales tax or scrap it and start a flat-rate income tax on Jan. 1.
Under this plan, as under several others, the current shortfall would be funded out of reserve funds.
The plan is an intricate dance of if/when situations:
1: If the constitutional convention is disapproved, the 3.25 percent income tax solution would go into effect January of 2003. There would be a reduction of the sales tax, local option sales taxes would be removed and a statewide uniform rate would take effect. 2: If the constitutional convention is approved Nov. 2, then the sales tax reform plan (details of which are still unknown) would go into effect Jan. 1, 2003. The convention delegation would be elected in 2004.
3: Delegates would be responsible for devising an alternative to the sales tax reform plan in September of 2004.
4: The convention proposal for tax reform would then go back before voters.
5: If voters approve a convention proposal, final approval could either be done by the legislature or the tax system in place at that time would remain.
Fowler accused anti- and pro- income taxers of “playing chicken” and said his plan would bypass the stymied legislature to let voters decide how to tax themselves.
Support for the plan, said Fowler, was unknown.
“I don’t know what the House will do; I wasn’t elected to the House. Do I have support? I don’t know,” he said. “This is not my thing of choice. Some will think I have lost my conservative principles … I assure you I have not.”
Income tax proponent Bob Rochelle, whose stance is usually opposite of Fowler’s, said leaders should look at the plan.
“It’s something I think we ought to be interested in,” he said. “I compliment you for giving this consideration.”
Wednesday, March 20, 2002
Tennessee to lose tax income because of federal action
By Tom Sharpt Associated Press Writer
NASHVILLE -- Congressional efforts to stimulate the U.S. economy could cost Tennessee up to $125 million in annual tax revenue, a loss the cash-strapped government cannot afford, the Sundquist administration says.
Justin Wilson, chief policy adviser for Gov. Don Sundquist, told the Senate Finance Committee on Tuesday the economic stimulus package signed into law by President Bush a week ago will lower tax collections in Tennessee. Estimates range from $75 million to $125 million a year, he said.
The economic stimulus package allows businesses to depreciate the value of their equipment at a more rapid rate. Depreciation comes off a company's profits, on which the state levies a 6 percent excise tax. The lower the profits, the lower the state's tax income.
Wilson said the National Governor's Association estimates the package will cost Tennessee $262 million over three years.
Since the law is retroactive to Sept. 11, it will affect this year's state budget as well.
Most businesses figure their excise tax obligations on a calendar year, so the last quarter's figures would be reduced. Wilson estimated it could cost Tennessee up to $20 million in the current fiscal year.
The state was already facing a $350 million budget deficit by June 30 because of sluggish tax collections in a slow economy.
Wilson said 20 states base their business taxes on the federal system, and stand to lose money. Democrats in the U.S. Senate estimated the stimulus package would cost states $14.6 billion.
Proponents argued the economic package would stimulate enough economic growth so that state taxes on the new activity would make up for the losses.
Finance Committee member Jim Kyle, D-Memphis, said that argument doesn't apply in Tennessee.
"A lot of the economic activity they're stimulating is service-based activity, which we don't tax," Kyle said. "They're essentially increasing income, which we also don't tax. I don't think there will be enough increased activity to benefit us."
------ On the Net:
Tennessee General Assembly, http://www.legislature.state.tn.us/