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Let the Voters Decide on IT

by Joe Sullivan

Even sadomasochists have it over our state legislators these days. At least the S & Mers get some gratification from the pain they inflict on others and themselves. In the case of the legislators, it's sheer pain that they seem bent on perpetrating over and over again.

The heck of it is they know how to stop the hurting. And that's to adopt lasting tax reform that spares them having to face recurring fiscal crises because of a defective tax structure. The cornerstone of tax reform is a state income tax whose revenue generation will keep pace with economic growth. Its enactment needs to be coupled with sales tax reduction in order to reduce the state's overdependence on a regressive source of revenue that's becoming ever more laggard.

A majority of our elected representatives know that this is not only the right way but virtually the only way to get Tennessee on a fiscally sound footing, albeit at the bottom of the pecking order among the 50 states. The trouble is that they are not prepared to go there. Too many have made campaign promises never to support an income tax for majorities to be mustered in favor of one now.

So the lawmakers flail futilely in every other direction in an attempt to come up with the $800 million in new revenue needed to balance Gov. Don Sundquist's budget for the fiscal year ahead. One day members of the House-Senate Conference Committee charged with covering the shortfall listen intently as UT economist Bill Fox admonishes them that raising sales taxes is the worst of all possible ways to solve the problem. The next day they approve a 1-cent increase in the sales tax that would make Tennessee's the highest in the land.

When it quickly becomes clear that there aren't enough votes in the full House of Representatives to approve this outlandish measure, the committee rescinds it and reverts to considering levies on presently untaxed services that had been roundly rejected last week.

While some sort of jury-rigged concoction will probably be contrived, it is time to stop all this temporizing that's gone on for the past three years (some would say 30 years). Since the legislature has proven itself incapable, the quest for a lasting solution needs to be taken to another venue. And that venue is the general public.

A plan to do just that has emanated from the most unlikely of sources: right-wing Republican Sen. David Fowler, who's been a staunch opponent of an income tax. Under the Fowler plan, in simplified form, the legislature would enact an income tax coupled with sales tax reduction. But the enactment would only become effective after a referendum in conjunction with the state's 2002 election at which voters could either ratify or reject it.

Several influential moderate Republicans, including Sens. Ben Atchley, Bill Clabough and Tommy Haun, have been gravitating toward the Fowler plan. And their backing could push it through the Senate, assuming liberal Democrat proponents of an income tax pitched in. The House is another story.

But wait, you say, aren't all those legislator pledges to oppose an income tax based on aversion to IT on the part of the electorate at large? So isn't submitting a tax reform plan that includes IT to a referendum a sure-fire death sentence?

Obviously, as with advanced cancer treatments, the risks are high. But recent studies suggest there is a reasonable chance of success. A survey conducted by Tennesseans for Fair Taxation shows 58 percent public support for an income tax coupled with sales tax relief and repeal of the 6 percent Hall tax on dividend and interest income (which Fowler's plan would also accomplish).

Given the legislature's inability to act, a simple referendum on tax reform has a lot to recommend it. Unfortunately, the state constitution doesn't provide for a simple way to conduct such a vote. The only means allowed for bringing a binding proposition to a referendum is via the constitutional amendment process. And the several possible paths for doing so are all complex.

The one proposed by Fowler starts with a referendum in August 2002, whose stated purpose would be whether to hold a constitutional convention to consider his tax reform plan. A "No" vote in that referendum would, in effect, be a vote for letting the previously enacted tax reforms take effect at a subsequent date certain. On its face, a "Yes" vote would provide for another election in November 2002, at which delegates to a constitutional convention would be selected. Opponents of an income tax could claim persuasively—but not conclusively—that "Yes" voters intend to reject IT. But the practical effect would be to place the entire matter in the hands of delegates elected to the constitutional convention, which would convene in 2003. Whatever came out of the convention would then become the subject of yet another referendum to be held later on that year.

As good as Fowler's intentions may be, his approach is badly flawed by its complexity. A more straightforward approach would be to forget pre-enactment of his tax reform plan and, more understandably, conduct a referendum on whether to convene a constitutional convention to consider it. In addition to making a "No" vote mean no and a "Yes" vote mean yes, this approach has several other advantages. For one, it would remove the uncertainty that continues to surround the question of whether a state income tax is constitutional. Secondly, it would imbed in the constitution the two-thirds votes in the legislature that Fowler would require for any future increases in either the 2 percent income tax or 4 percent sales tax rates set in his reform plan. While Fowler proposes to accomplish this by statute, the legislature simply doesn't have the constitutional authority to impose supermajority requirements upon itself. Yet their imposition could be crucial in carrying the day for an income tax in the first place.

The worst thing about the constitutional amendment route is that it would leave the state twisting in the wind for at least two more years while the amendment process runs it course. In the interim, the legislature would have to come up with yet more patchwork. But in the interest of getting a long-term solution, let the interim fixes be as odious and onerous as they may.

June 14, 2001 * Vol. 11, No. 24
© 2001 Metro Pulse