Frustrated by the budget impasse and admittedly ready to go home for good, lame duck House finance committee chairman Matt Kisber put out a casting call last week to all 99 members of the Tennessee House of Representatives. Following a scramble for a vote on a penny sales tax increase that never materialized, Kisber challenged his colleagues from the floor of the House to audition their solutions to the state revenue shortfall at today’s finance committee’s meeting.
Four legislators responded to the call. Front and center was Speaker of the House Jimmy Naifeh (D-Covington), who Tuesday presented his much-ballyhooed plan for a 4.5 percent flat rate income tax.
If Naifeh’s plan passes, the state’s budget would grow by $1.1 billion. In a clear attempt to diffuse the jarring reality of such a huge money grab by state lawmakers, Naifeh quickly pointed out that even if the measure passed, Tennessee would still rank 49th in the nation and last in the South in personal taxation. According to Naifeh, his bill is now drafted and will travel the proper channels toward the House floor, stopping for approval in the finance committee as early as next week.
Lame duck Rep. Ken Givens (D-Rogersville) used the upcoming heavyweight bout in Memphis between Mike Tyson and Lennox Lewis as an example of where the state of Tennessee is missing opportunities to tax income. The amount of income tax the state could glean from those two fighters alone, Givens said, would be far more than the $16,500 salary each lawmaker is paid annually.
Following Naifeh’s presentation, two lawmakers promoted their plans to increase sin taxes to cover the current year’s budget shortfall, now estimated to be somewhere between $350 million and $450 million. Rep. Frank Buck (D-Dowelltown) introduced a plan to increase taxes on cigarettes, alcohol and motor vehicle registration to the national average. Combined with an extension of the Hall income tax to capital gains and a reform of TennCare, Buck said $367 million could be raised.
Rep. Bill Dunn (R-Knoxville) also pushed for a plan to raise sin taxes. However, the reaction of committee members to both plans appeared to be that while each plan may have merit in the short term, neither addressed Kisber’s call for solutions to next year’s projected budget deficit of nearly $600 million, nor did either address a long term fix. Not surprisingly, much of that sentiment came from income tax supporters.
Pulling up the rear, Rep. Keith Westmoreland (R-Kingsport) resurrected his plan to scrap every existing tax in the state and start anew with a “singular exchange tax,” a.k.a., an income tax in disguise. Essentially Westmoreland’s plan would place a 3 percent tax on every dollar of economic activity in the state, including a person’s income. Sales tax on goods and services would also be 3 percent. Corporate net earnings would be taxed at 3 percent. A local option sales tax of 1.25 percent would be permitted in an effort to hold cities and counties harmless for the overall reduction in the state sales tax.
Dedicated taxes like the gas tax for TDOT, the motor fuel tax and the vehicle registration tax would remain untouched. Exemptions from the tax would include health care services, goods sold for resale, industrial machinery and food stamps, among other items.
Asked by one lawmaker to clarify if his “singular exchange tax” applied to income, Westmoreland declared, “That’s an exchange.”
The level of interest in Westmoreland’s plan could be seen in the fact that several legislators, including Kisber and Naifeh, left the committee room during his presentation.