Bredesen Defends Proposal to Raise Tax on Big-Ticket Purchases

Governor Phil Bredesen is defending a plan that would raise taxes on certain big-ticket purchases. Right now Tennessee caps its tax on items over $3,200. This week Bredesen proposed to end that cap, raising the tax on more expensive items, except for cars, boats, and pre-made homes.

The plan is aimed at closing a roughly $100 million budget hole. Bredesen says for the state to make up that amount using cuts instead of taxes, it would have to slash salaries by 5 percent across the board.

So while some Republican lawmakers railed against the proposal, Bredesen says he doesn’t see a better option.

“These are difficult times, and you can’t just say ‘no’ to everything. At some point you’ve got to decide what it is we’re going to do to get through these things. I’ve put a path forward that relies primarily on cuts, has a couple of revenue enhancements in it, that I think gets us through. If the legislature wants to handle it in some different way, that certainly is their prerogative. But it has to be handled.”

Some have called the increase a ‘luxury tax,’ since it hits items like expensive jewelry, but Bredesen says it will mostly affect businesses. He says other states like Alabama, Mississippi and Texas already charge similar taxes, and he doesn’t expect it to make Tennessee less attractive to new companies.

Bredesen announced the proposal at his weekly breakfast with legislative leaders on Wednesday.

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Senate Speaker Ron Ramsey argues the proposal will undercut new investment in Tennessee businesses.

“This bill, as presented, would take $85 million out of the economy, and mostly from small businesses, that buy those backhoes, and bobcats, to create jobs, and bring it to the state treasury. And it couldn’t be worse timing. So I think that we’ll find alternatives. I do.”

Ramsey says those alternatives will be cuts – He says everything is on the table. A candidate for the Republican nomination for governor, Ramsey says the characterization of the proposal as a “luxury tax” is off base. Instead of raising taxes to fill a budget gap, Ramsey says the state should look everywhere for savings.

“Yes, there’d be across the board cuts, there will be, maybe something on provider fees, and TennCare. There’s all kinds of things out there. There may be bonds that have been authorized but not issued.”

But those alternatives aren’t settled yet, Ramsey says.

Joe White contributed to this report.

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DETAILS ON THE STATE SHORTFALL:

A state spokesperson writes “when the Funding Board last met on March 29, they estimated the state would see another $77 million in under collection of revenues by the end of this fiscal year on June 30. On top of that, they estimated the tobacco tax would bring in about $23 million less than projected this year, leading to this need for additional revenue to close the current fiscal year.

“As of March 31, revenue collections for the current fiscal year were $244.1 million less than original budgeted estimate from last spring. The Funding Board estimates for the remainder of the fiscal year are in addition to that.

“Commissioner Goetz says that we have already cut about 21 percent from state agencies, reducing spending by about $1.4 billion. There aren’t a lot of options available to generate $85 million, and it’s more reasonable to solve the problem with a revenue measure that won’t affect most Tennesseans through the single article cap.”

The spokes also clarified that the above-mentioned possible 5 percent across-the-board pay cut for state employees would include higher education, but not K-12 teachers.

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