Tennessee State Capitol. (Photo: John Partipilo)
Tennessee lawmakers approved $280 million worth of tax reductions for fiscal 2022-23, including a license plate break and grocery sales tax cut set for August, complemented by the annual sales tax holiday.
But considering the state’s budget hit $52.8 billion for fiscal 2022-23, starting July 1, and revenue for this budget year continues to soar past projections, some question exists whether the state went far enough in returning money to taxpayers.
The state had $2.7 billion in surpluses to work with as it prepared for the next fiscal year. This April alone, state revenues hit $3 billion, exceeding budget estimates by $915.3 milion.
So far, this budget year, revenues are $3.4 billion more than estimated from August 2021 through April, a growth rate of 19.12%.
“Definitely more can be done,” said Rep. Vincent Dixie, chairman of the House Democratic Caucus. He points out Democrats have been pushing a grocery sales tax break for years, and he believes it could be eliminated permanently.
The sales tax on food is 4% and includes groceries in their original form, not prepared foods. Democrats contend the one-month break this August equates to only about $15 for a family.
The estimated cost to the state is $80 million for the grocery sales tax holiday. That could mean nearly $1 billion over a year.
“If you really want to give people some relief, that does two things. It puts more money in their pocket and more food on their table,” Dixie says.
Another $121.6 million is budgeted in the coming year to eliminate the state’s $23 license plate registration fee, though motorists will continue to pay their county wheel taxes.
Other tax relief measures approved for next fiscal year are:
- $9 million to remove the yearly $400 professional privilege tax on doctors. In 2019, the Legislature eliminated the tax on 15 licensed professions.
- $68 million to cut sales taxes on broadband supplies and encourage companies to speed up the installation of broadband services in rural areas.
- $2.8 million to reduce the sales tax on agricultural machinery and equipment.
- $360,000 to eliminate the tax on gold bullion and silver.
- $137,000 for a one-year sales tax moratorium on gun safes and gun-safety devices.
These come on top of the annual sales tax holiday for school supplies to be held July 29-31.
State Sen. Ken Yager of Kingston, chairman of the Senate Republican Caucus, touted the tax reductions as the Legislature adjourned sine die in April, saying, “We have returned money back to taxpayers.”
Queried about whether tax reductions could be higher in light of state surpluses and the size of the budget, Yager said previous tax reductions have to be taken into consideration as well.
“When you look at that big picture, this is just an unprecedented return of money to the taxpayers,” Yager said.
Sen. Bo Watson, a Hixson Republican who chairs the Senate Finance, Ways and Means Committee, pointed out most of the budget reductions were non-recurring, meaning the Legislature would have to take action again to renew them next year.
“Whatever’s recurring we’re saving for perhaps next year when the economy, perhaps it starts to take a dip, which many people are anticipating,” Watson said. “So we’ve got two or three years before that starts to happen. I think we’ve positioned the state well to endure an economic downturn that inevitably is coming.”
Watson also contended the state budget for next fiscal year should really be considered in the $43 million range, saying it is “artificially inflated” because of federal funds poured into it over the last two years of COVID-19-related spending.
House Majority Leader William Lamberth of Portland also boasted about the tax reductions as the Legislature prepared to adjourn.
For example, eliminating the professional privilege tax for physicians rewards a group that’s been through a difficult two years in battling the pandemic, he said.
“Those are our health-care heroes, and they’re going to get a cut of $400,” he said.
The reduction on gold and silver is also important because it could attract shows to Tennessee where dealers can trade gold coins and precious metals without worrying about paying sales tax, Lamberth noted.
In addition to touting the tax break on gun safes and gun-safety devices, which he believes will encourage gun owners to store weapons safely, Lamberth said the food sales tax break was done “in a very responsible way.”
“In this economy, in the Biden economy where inflation is absolutely sky-rocketing, it’s important that we try to cut taxes on food,” he said.
Yet instead of eliminating the tax, the Legislature can act one year at a time, since it doesn’t know how inflation will affect the economy in the long term, Lamberth said.
“…. We know at some point this economy is going to turn the other way,” he added.
The Republican supermajority did not have the compassion enough to share in the wealth.
– House Minority Leader Karen Camper, Memphis
Democrats supported the tax reductions but felt the outcome was too stingy, considering the revenue rolling into state coffers creating what could be the biggest surplus in state history, much of it coming from Davidson and Shelby counties represented by the minority party.
“The Republican supermajority did not have the compassion enough to share in the wealth. There were so many great things we could have done,” House Minority Leader Karen Camper of Memphis said.
Camper called it a “missed opportunity” to put more money in the hands of families.
For instance, the state of Colorado, which has an income tax rate of 4.55%, gave $400 tax rebates to taxpayers and $800 to couples. Tennessee relies primarily on its sales tax and business taxes.
Gov. Bill Lee’s budget injected $1 million more into K-12 education, but Senate Minority Leader Jeff Yarbro said that amount will still leave Tennessee in the bottom of spending nationally. The state consistently ranks in the lower 40s in most education spending categories.
“We could have made game-changing investments in education, child care, affordable housing, and we failed to do it, and people need it right now,” Yarbro said.
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