Bredesen: Lift Sales Tax Cap or Cut State Salaries

ERIK SCHELZIG | Associated Press Writer

NASHVILLE (AP) — Democratic Gov. Phil Bredesen said Thursday that lifting Tennessee's sales tax cap to plug an $80 million budget gap would avoid a pay cut for all state employees.

Bredesen told reporters after a speech to educators that the alternative to lifting the cap would be to require a 5 percent salary decrease for all state workers.

"We'd probably have to do an across-the-board salary reduction," Bredesen said. "And this was sitting out there as an exception that I think is not really justified by any public policy."

The state currently limits sales taxes to the first $3,200 of purchases. Bredesen wants to remove that cap to allow the state to collect sales taxes on the full purchase price. The cap would remain for vehicles, boats and homes.

While some consumers — like those buying expensive jewelry — would be affected, the change would mostly apply to businesses, Bredesen said.

The governor challenged Republican lawmakers skeptical about the proposal to come up with their own solution to the budget gap.

"You can't just say no to everything," Bredesen said. "At some point you've got to decide what it is we're going to do to get through these things."

State Senate Speaker Ron Ramsey of Blountville said he and fellow Republicans felt blindsided when the governor first informed them of the sales tax proposal a day earlier.

"We will have an alternative, absolutely," Ramsey said. "We'll figure out where to make those cuts, but we're going to need a week or so to do that."

Ramsey, who is running for governor, said the changes in the sales tax rules would hurt small businesses "that buy those backhoes and Bobcats to create jobs."

A constituent planning to buy $12,000 gas pumps for his convenience store might reconsider the purchase if he had to pay the full sales tax on them, Ramsey said.

Bredesen said the state is facing a $105 million shortfall in addition to cuts already planned for the budget year that begins July 1. Lower-than-expected enrollment at public schools has freed up about $25 million, but the governor said officials must work to make up the remainder.

But Ramsey warned that the GOP majority in the Senate remains opposed to related efforts to remove a tax break on cable boxes and isn't certain about another measure to increase driver's license fees. The total budget gap may be closer to $150 million, Ramsey said.

Bredesen said state economic development officials think lifting the sales tax cap wouldn't affect investment in Tennessee because other states like Alabama, Mississippi and Texas also don't have a cap on sales taxes.

"We have an exception here in Tennessee that just doesn't exist in a bunch of other states," Bredesen said. "I'd rather ask (businesses) to step up to this than I would try to cut salaries by 5 percent."

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