The end result was actually more fore-ordained than the final tally indicated. Several allies of the Speaker or of Governor Don Sundquist had indicated they were available for Yes notes if needed. Both Naifeh and the governor had said earlier Wednesday that they had decided to accept the Cooper bill, which included a variety of add-on taxes in addition to its core provision of a 1-percent sales tax, as the basis for a compromise budget settlement. Each man had staked much on a call for tax reform, which in practice meant a state income tax, and the decision to give up was based on their belief that, as Sundquist put it during a noontime visit to Legislative Plaza, that a complete shutdown of state government on Friday could not be tolerated. Since Sunday night state government had been put on part rations under the terms of an essential services measure, but 22,000 employees, almost half the entire state workforce, had been furloughed.
Appropriations measures and various other housekeeping duties remained to done on Thursday before the legislatures third straight July adjournment, but in essence a four-year stalemate was over. In giving up his last shot at tax reform because you have to deal with reality, Sundquist, who had done what he called missionary work for the last 3 years, cautioned that his successor would have to deal with a structural tax deficit. The bill enacted Wednesday will provide some $933 million in new state revenue, enough to cover the existing shortfall and provide state employees and teachers a modest pay raise of 3 per cent and 2 percent, respectively.
Rep. Mike Kernell (D-Memphis), an income-tax advocate and one of the 41 House holdouts Wednesday, pointed out in final debate on the Cooper bill that it constituted a 17 percent increase in the sales tax. He echoes an equally defiant Sen. Roy Herron (D-Dresden) who had made a passionate attack on the bill previously, concluding It is always the right time to do right; there is never a right time to do wrong. But Sen. Roscoe Dixon (D-Memphis) noted, I hate the sales tax. But youve got to do what youve got to do" -- a refrain which was echoed by Sen. Steve Cohen, another Memphis Democrat, who reluctantly announced he was moving from a position of abstention to vote for the bill.
Cohen and other income-tax supporters noted that, as Naifeh and Sundquist had reluctantly concluded, the votes for such a measure, however configured, just werent there.
Critics declared that the bill will push the state's sales tax rates, when combined with those of local governments, to one of the highest levels in the nation. People with low income levels are hit the hardest by the levy, they said, and the higher rate will send more Tennesseans across state borders or to the Internet for shopping.
Even some of those who ended up voting for the bill -- like Rep. Tre Hargett (R-Bartlett) -- denounced it for its severity. Rep. Ken Givens D-Rogersville) echoed Kernells sentiments about the 17-percent increase, which makes the bill the largest tax increase measure in Tennessee history.
The present state sales tax rate is 6 percent and the bill will raise that to 7 percent - except on grocery food. On food items, the rate will remain at 6 percent. Local governments can add up to 2.75 percent in sales tax, putting the combined maximum level at 8.75 per cent now and 9.75 percent under the bill.
The sales tax increase, which takes effect July 15, would produce an estimated $600 million. About $200 million of the remaining new revenue would come increased taxes on business. These include an increase in the excise tax rate from 6 percent to 6.5 percent, a 50 percent increase in local business taxes with the state keeping the money and a "decoupling" of state business taxes from federal business taxes. The latter move avoids a loss of about $50 million that would occur if state law continues to track federal law, particularly on rules dealing with depreciation.
The bill also doubles the "professional privileges tax" levied on some licensed professionals from $200 to $400 per year, boosts cigarette taxes by seven cents per pack, increases taxes on alcohol by 10 percent and levies new taxes on coin-operated amusement devices and vending machines.
There is also an increase in the "single item cap" for sales taxes. Currently, the full state sales tax rate applies to the entire amount of a major purchase but the local sales tax rate of up to 2.75 percent applies only to the first $1,600. The bill raises the cap to $3,200 with the state keeping the revenue from the increase
Various amendments were offered in both the House and Senate, receiving in some cases a pro forma debate,but none succeeded.