After decades of justified bipartisan bragging on Tennessee’s fiscally conservative status, our state legislators enthusiastically embraced deficit spending this year on a somewhat bipartisan basis, blowing a $300 million-plus hole in budgets of state and local governments for the sake of political popularity.
For the same reason, Gov. Bill Haslam is highly unlikely to veto the bill repealing the Hall tax on investment income, even though he has repeatedly preached on the fiscal irresponsibility of taking such an action without a plan to replace the lost revenue.
There is no such plan, of course. On the last day of the session, legislators basically said to state and local governments that the tax will disappear in six years, so deal with it. The governor sent his two top aides, Finance Commissioner Larry Martin and Deputy Governor Jim Henry, to politely tell lawmakers late in the session that the amended version of SB47 was basically a fiscally stupid idea.
As the final week of the session began, the administration and legislative leadership had reached a somewhat complicated agreement on the Hall: The 6 percent levy would be cut to 5 percent in the coming year and, in future years, a “legislative intent” was declared to repeal another percentage point each year — if state revenue increases otherwise by 3 percent or more in that year.
This year, the state enjoyed a $600 million budget surplus. The first year of the tax cut could thus be easily absorbed, it was reasonably argued, and the language left wiggle room to accommodate unforeseen future fiscal and political realities.
Martin said the 3 percent trigger did not seem very wise. It would mean that, regardless of what happens, cutting the Hall would have priority over all other things that a 3 percent revenue bump could go toward — increasing teacher pay, for example, or the predictable annual increase in other education needs as enrollment goes up, the annual increases in medical costs that send TennCare spending up every year, a costly lawsuit — two are pending that could conceivably add multiple millions to education spending — or, well, any number of things we cannot imagine today.
But for the sake of political expediency, the administration was ready to ignore such concerns and go along, leaving the possibility of changing “legislative intent” to arguments in future years when further Hall reductions could be pitted against other priorities. That wasn’t good enough.
The final version says the tax will be fully repealed, come hell or high water, in six years, barring the unimaginable possibility that legislators in the future will vote to repeal the tax cut now mandated and be accused of voting for a tax increase.
The governor, a billionaire in Forbes magazine’s estimation, presumably is way up toward the top of the 200,000 Tennesseans paying the Hall tax — probably well into six figures as opposed to the statewide average annual payment of $266. But as a policy matter, he has set aside personal financial interest to oppose the plan as fiscally irresponsible for the businesslike operation of government.
Setting aside political interest, though, is another matter. A veto, which would stand since the Legislature has adjourned without an override session scheduled, would provide ammunition for opponents in any future political endeavor — a U.S. Senate race, maybe? — and would lead to a highly-publicized effort to pass the bill again next year that would doubtless succeed, even as he contemplates pushing a gas tax increase.
Two right-wing groups, Americans for Prosperity and Beacon Center of Tennessee, both claimed to have gotten more than a million views on sponsored videos against the Hall tax and to have contacted thousands of voters otherwise. With some justification, they claimed credit for putting the legislative train on track.
Only two Republicans — Reps. Bill Dunn of Knoxville and Steve McDaniel of Parkers Crossroads — had the political courage to vote against the bill, though a dozen or so dodged a vote one way or the other. Several Democrats voted for it; a couple dodged.
The governor has a dodge opportunity as well. He can let the bill become law without his signature, which would indicate that he does, indeed, have future political plans that outweigh pragmatic policy considerations. A veto would indicate he does not and stands on principle.