Tennessee Republicans say they have no interest in adopting Gov. Phil Bredesen’s proposed increase in the sales-tax rate on big-ticket purchases in place of deeper cuts to government spending.
They instead plan to release their own proposal by Tuesday that they promise will pare down next year’s budget to better line up with projected revenues.
Lt. Gov. Ron Ramsey, a Blountville Republican and a candidate for governor, has been one of the most vocal critics of Bredesen’s plan, which is to sponge up another $85 million from the private sector next year by lifting the tax cap on individual items that ring up for over $3,200, excluding vehicles, boats and manufactured homes.
Ramsey argues that the governor’s proposal to boost the tax-rate from 7 percent to 9.75 percent on the class of items targeted will hammer small businesses already struggling just to stay afloat and make payroll.
House Republicans jumped in behind Ramsey Wednesday, echoing his sentiments that a substantial tax hike now basically couldn’t come at a worse time.
“The Governor is showing a blatant disregard for the challenges small business owners and average Tennesseans face,” said House Majority Leader Jason Mumpower, a Republican from Bristol. “As the economy is struggling mightily, this would do nothing but provide a setback for recession-weary Tennesseans.”
Ramsey declined in an interview Wednesday with TNReport to even hint at the types of cuts GOP lawmakers will propose to make budgetary ends meet.
But Rep. Beth Harwell, R-Nashville, chairwoman of the House Commerce Committee, said more government layoffs and program reductions are all but inevitable.
“It may mean some fewer state employees. It may mean some programs being scaled back. Certainly no additional, new programs,” she said. “Certainly, I think the legislature needs to understand that there is not going to be any pork projects, any projects to take home to the district.”
The additional revenues Bredesen has proposed snaring would be used to fill the $105-million-and-likely-growing budget hole lawmakers are staring through for the next fiscal year.
“To be realistic, (the plan) is more of a business tax,” Bredesen said of his proposal. Administration spokespersons have taken pains to point out that “luxury items” — such as jewelry, furs and high-priced furniture — are among the products the governor is seeking to tax at a higher rate.
Department of Revenue estimates suggest that last year, of the types of purchases the governor wants to tax at a higher rate, 70 percent were wholesale and service-company transactions. Those purchases typically involve businesses buying from other businesses, or companies paying sales taxes on products — like office furniture, machinery or other equipment — after the fact, said Reagan Farr, Department of Revenue commissioner.
The remaining 30 percent of high-priced purchases fell on the shoulders of consumers last year, he said. About 15 percent of sales over $3,200 were rung up at miscellaneous retail stores selling items such as cameras and jewelry. Another 15 percent came from stores selling building materials and furniture, according to Farr.
Legislative Democrats have generally voiced support for Bredesen’s idea, saying that in the absence of a GOP proposal, it’s the best anybody’s put forward.
“I think the governor is trying to lead us through a very difficult economic time and I certainly think lifting that exemption is fairer than any alternative that I’ve heard presented,” said Rep. Mike Stewart, D-Nashville, who sits on both the House Commerce and Joint Business Tax committees.
Ramsey said he expects the Senate to approve a Republican-backed budget roughly a week after it’s proposed. He then plans to put a hold on Senate action to allow members a break to return to their districts until the House passes its version of the state’s spending package.