The City Paper’s John Rodgers wrote a story this morning on the possibility of reducing the state sales tax on food. Those in favor of reducing the tax: Governor Bredesen, Republican gubernatorial candidate Jim Bryson, and me. Those opposed: Senator Douglas Henry.
Senator Henry has long opposed reducing the sales tax on food because it is a “stable” source of tax revenue.
I apparently didn’t describe my plan clearly enough when I spoke with Mr. Rodgers, so let me explain. I believe that budget surplus money should only be used to build up the rainy day fund or to reduce taxes. To reduce taxes, the state “refunds” a portion of the 2006 budget surplus in the form of a temporary tax cut in 2007.
The budget year just ended saw a $411 million surplus. (BTW, the state sales tax on food in 2005 brought in $443 million, meaning that the surplus alone could have nearly eliminated the entire sales tax on food.) I would have put $200 million into the state’s rainy day fund–that’s nearly double what did go into the fund at the end of fiscal year 2006. The remaining $211 million would have gone into an account that would replace the lost tax revenue as a result of cutting the sales tax on food in half for 2007. At the end of the FY2007, any budget surpluses would again be rolled over into the following year in order to extend the temporary tax cut.
Senator Henry objected to my plan to return extra tax revenue to taxpayers ”because it would use one-time money to pay for an expense that reoccurs.” However, that’s exactly what the Legislature did when it obligated $300 million of the budget surplus to reoccurring expenses.
Another objection to my plan came from State Finance Commissioner David Goetz, who said that state lawmakers may have to make the “politically unfortunate” decision to ”increase” the future tax rate if the surpluses run out. However, the burden should always be upon the Legislature to justify a tax increase. Instead, now the burden is upon the taxpayers to ask for their surplus money back. That’s just simply not right.
While Senator Henry and I are both concerned about Tennessee’s fiscal health, we seem to have a fundamental disagreement about whose money it is. Taxes are your money. And when the state takes in more than it needs, the state has an obligation to either set the money aside for the future, or to return it to you in the form of a tax break. The Legislature has no right to spend surplus money.
My plan would have put $200 million of the surplus revenue into the rainy day fund, and would have returned the other half to you in the form of a 3% reduction in the sales tax on food in the upcoming fiscal year.
Instead now, the rainy day fund grew only half as much, your sales tax on food is twice what it could have been, and now the state has obligated an additional $300 million worth of reoccurring spending.
My plan isn’t just better for the state’s fiscal health. It’s a better plan for the fiscal health of Tennessee’s citizens and families.
Let me describe the difference between me and Senator Henry even more succinctly:
Senator Henry objects to my plan to reduce a regressive sales tax on food by $200 million because the tax cut might not be sustainable in the long run, but he supported a reoccurring spending increase of $300 million.
Which one of us do you want guarding your money?