VOL. 132 | NO. 19 | Thursday, January 26, 2017
View From the Hill
View From the Hill: Haslam Facing Tough Sell on Tax Hikes, Cuts
By Sam Stockard
An interesting thing happened just a couple of hours before Gov. Bill Haslam unveiled his fuel-tax increase plan amid great fanfare at the State Capitol.
As the governor started explaining the proposed IMPROVE Act to reporters during a short media briefing, he apparently realized more people were poring over a handout than paying attention. They were trying to get a jump on writing stories while digesting the numbers combined with an array of tax breaks designed to make tax increases more palatable.
Haslam stopped short: “If everybody would do me a favor and just listen for a second instead of reading,” he implored. “I promise you, you’ll have plenty of time to read it afterwards. I’ll be the teacher and lecture you.”
It’s not every day reporters get admonished by the governor. In fact, one even cussed – quietly.
Then, Haslam continued explaining how Tennessee has the lowest tax in the nation as a percentage of personal income and the lowest debt per person. He also pointed out the 21.4-cent-per-gallon gas tax passed in 1989 is now the equivalent of 11 cents per gallon and noted it isn’t really affected by inflation because it’s paid by the gallon.
While the price of a candy bar might be up 25 cents – and the sales tax on it rising, too – gas taxes stay the same no matter how much gas costs.
And, while the state is the lowest nationally on personal taxes, it is among the highest on franchise and excise taxes, those paid on value and earnings of businesses, making it harder for Tennessee to recruit businesses, he added. (This was the first most people heard of this one-hand-behind-the-back tax.)
Still, the governor contends his administration already has cut $270 million in taxes over the past few years and plans to remove another $270 million with the IMPROVE Act, a total of $540 million, which he says is unprecedented.
As proposed, the cuts would come from $113 million in business tax breaks, $102 million on the Hall income tax over the next two years and $55 million on a half-percent cut on grocery taxes.
Those would soften the blow of a 7-cent increase on the gas tax, 12 cents on the 18.3-cent diesel tax, $5 more on registrations, more on rental cars and $100 fees on electric cars, all of which would bring in about $278 million annually. That money would help the state start chipping away at a $10.5 billion list of state road and bridge projects approved but not funded and a laundry list of other work. Fuel taxes now bring in about $670 million a year.
The move is designed to finance 962 projects in all 95 counties, with nearly 95 percent of backlogged projects starting construction within six years.
Unfortunately for Haslam, his problem isn’t making the press listen. His biggest stumbling block will be rank-and-file Republicans, and he probably needs to avoid getting teachy or preachy.
No matter how many times he says it doesn’t make any sense to use a billion-dollar surplus of recurring money or another billion dollars in non-recurring money to solve the backlog, they aren’t going along with him.
So, when he says the trucker from California and snowbirds from Ohio headed for Florida should help pay for Tennessee’s roads, they’ve got their fingers stuck in their ears.
With that type of audience, will this major proposal turn into another Insure Tennessee boondoggle for the governor?
MTSU political science professor Kent Syler points out Haslam has enjoyed two successful terms, but there’s “no real incentive” for the sixth-most Republican legislature in the country “to move to the middle,” even if the governor’s reasoning is better roads for the economy and less congestion.
“There’s only a fear of having another Republican run against them in the primary. On Insure Tennessee, it was the fear of having your challenger saying, ‘John Smith voted for Obamacare,’ and with the gas tax it’s the fear of having your opponent say, ‘John Smith voted to raise your taxes,’” Syler says. “I don’t know that there’s anything the governor can do about that type of sentiment.”
Haslam probably chose a number for fuel taxes he thought had the best chance of passing with the public and Legislature, but he’ll have to undertake a “real public education process,” Syler adds.
Where it stands
House Majority Leader Glen Casada, fresh with a new job this session, says he plans to back “whatever” legislation comes out of House committees to “find a permanent source for funding our roads in Tennessee.”
Yet, he recognizes legislators such as Rep. Andy Holt of Dresden are whipping up a bit of a frenzy against raising fuel taxes with the state enjoying huge surpluses.
Casada says there probably aren’t enough votes in the House to increase fuel taxes currently.
“But the governor will present it and he’ll present the reasons and logic why his plan is better than the other plans. And we’ll see if he changes the members’ minds,” Casada adds.
In a Facebook posting, Holt rails against the fuel-tax proposal and complains it’s a tricky way to get him to vote against cutting business and grocery taxes, something that could be used against him by a future opponent.
He makes a good point.
But while folks in upper West Tennessee where Holt lives enjoy good roads – thanks to the late Gov. Ned Ray McWherter – people around Memphis, Nashville and other urban areas are begging for immediate traffic relief.
Oddly enough, Republican legislators from Rutherford County are siding with Holt. Even though residents suffer from the I-24 corridor every day they drive to and from Nashville, at least three of four reps are on record saying they oppose a fuel-tax increase, and the other is likely to vote against it, as well.
Rep. Bryan Terry of Murfreesboro says the state should be able to increase the transportation budget and cut taxes without raising the gas tax.
“Tennessee does not have a revenue problem. But we may have a priority and allocation of revenue problem,” Terry explains. “We have billions of dollars in surplus tax collections and the governor’s proposal increases the financial burden on Tennessee’s most vulnerable.”
Never mind that Haslam says he plans to use those surpluses for the rainy-day fund, higher education, K-12 education and other priorities, in addition to returning $120 million to the transportation fund taken from it by the (Phil) Bredesen administration in 2007 to balance the budget.
The governor isn’t enthused, either, about moving general fund money into the transportation fund, which historically is funded by fuel taxes.
What the Dems say
Haslam’s IMPROVE Act proposal has about as many viewpoints as it does pieces.
Republicans and Democrats both point out it has “a lot of moving parts” with several changes to the tax code. For instance, the $5 increase in the state vehicle registration fee could be considered as irritating as paying more at the pump, especially for someone with three or four cars, no matter how much they’re worth.
Haslam also wants to pass an open-container law to put $15 million from the feds into the state’s transportation fund. Right now, it’s divvied up across departments because of federal restrictions.
And, a point sure to draw boos is a move to tie gas taxes to the Consumer Price Index every two years, meaning it is likely to go up with the cost of living.
Even the governor says, “That’s a very controversial provision.”
Even those Democrats, whom Haslam probably targeted as an easy sell, are finding problems.
State Sen. Jeff Yarbro, a Nashville Democrat, says his side of the aisle might see Haslam’s plan as “more regressive” because even though it would cut a half-percent on grocery taxes, it provides businesses an even bigger break. (Haslam’s argument is that business tax cuts will lead to more jobs and provide residents a better living.)
Another cog proposed by the governor is a local-option revenue source for local governments, approved through referendum, to fund mass-transit projects.
“I think the big question for us is whether this gives local governments the flexibility and tools they need to solve the transportation crisis in Middle Tennessee, because if it doesn’t I think this is going to fall short of what the governor’s plans are, hopes are, and I think it’s going to fall short of passage,” Yarbro points out.
Rep. Bo Mitchell, a Nashville Democrat, applauds Haslam’s tax cuts but contends business and Hall tax reductions don’t affect most Tennesseans. He’d like to see a bigger cut in the grocery tax, now at 5 percent, along with a $5 million injection for property tax breaks for low-income residents and veterans.
He’s worried, as well, that the gas tax won’t go far enough in helping local governments but says the potential for mass transit projects through referendum is crucial to motorists, Mitchell says.
“If they see there are transportation problems in the area, if they’re tired of sitting in traffic, they can vote to do something about it, so it’s kind of putting the power in the people’s hands, which I applaud,” Mitchell adds.
If, as promised, people could be assured projects from the gas tax increase would start working tomorrow, they’d probably say “Go for it.”
Likewise, if they’re one of those dreaming of high-speed rail while sitting in gridlock on I-24, they’re saying, “I’ll give my oldest child for a seat on the Shanghai Maglev!” Well, they’re probably not really thinking that, but it does have an average speed of 251 mph on a high-speed magnetic levitation line in China. It was constructed in a joint venture by Siemens and ThyssenKrupp.
Just imagine being able to get on a train in Murfreesboro or Smyrna and zip along to downtown Nashville while reading a newspaper, sipping coffee or working on your laptop – or doing all three instead of killing time in traffic battling with goofballs who don’t how to use a blinker.
But at a time when the Haslam administration is flush with money from cutting taxes, reducing spending and generating jobs, the governor is going to have to make the sales job of his lifetime – better than he did on Insure Tennessee – to persuade legislators, mainly his own party, to come along for the ride.
With two years left in his second term, can he close the deal? Depending on this Republican supermajority of 74 in the House is a gamble with tough odds. He’ll have to give them a better lecture than the press corps. But they’re less likely to listen because they have to run for re-election.
Sam Stockard can be reached at email@example.com.