Tennessee, like most states, has suffered declines in tax revenue from 2008 levels every year since the financial implosion in the last quarter of 2008 triggered the worst recession in 80 years. The economy's hard-won recovery, state economists say, may finally reverse that trend. They now see total tax revenue finally reaching, and possibly exceeding, the 2008 level again in 2013.
That's moderately good news. It doesn't take into account, of course, the added cost of inflation in that five-year span. Getting back to the 2008 level of tax revenue, if that happens, will still leave the state short by at least 10 percent in purchasing power from 2008 levels. The Legislature's ruling Republicans don't seem to get the math. They are already planning big tax breaks for the most affluent Tennesseans.
Senate Speaker Ron Ramsey wants to take another bite out of the state's Hall tax on income from interest and investment dividends. House Speaker Beth Harwell proposes to cut into the state's inheritance tax, which applies to estates worth more than $1 million.
Ramsey's plan would expand the tax exemption created last year that dropped the Hall tax on the first $26,200 of seniors' income from stocks and bonds. That cut is expected to cost the state $1.75 million in state and local revenue; enlarging the exemption will cost even more. As it is, the Hall tax produces about $189 million in revenue, a third of which goes to local governments.
Harwell's proposal would create a substantially larger tax loss -- about $107 million -- if she is successful in dumping the inheritance tax.
The benefits of these tax cuts, like most Republican proposals, would favor the most affluent Tennesseans. If Republicans honestly believe tax cuts after deep cuts in basic Tennessee services are affordable -- Gov. Haslam reasonably says they are not affordable -- they would serve far more needy Tennesseans by reducing the state's 5.5 percent sales tax on groceries.
That would be especially helpful, given that Tennessee's sales taxes already constitute the highest and most regressive state tax structure in the nation. The latest Census data confirms that 48 percent of Americans -- nearly 1 out of every 2 -- have fallen into record poverty and are struggling just to buy food and utilities. With Tennessee being one of the nation's poorer states, our poverty level is probably over half. Even a small cut in the tax on food would be welcome. It would certainly be a more useful, honorable tax cut than giving another tax break to the well-off.