Return to Transcripts main page

American Morning

Should Tennessee Adopt a State Income Tax?

Aired August 08, 2001 - 11:18   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
DARYN KAGAN, CNN ANCHOR: Just mention the words tax reform or state income taxes and you're going to find a lot of anger in Tennessee. They are talking about that there. Today the debate over the state's proposal budget problem drags on one day after the Tennessee legislature overrode a governor's veto to try to, perhaps, impose a state income tax.

Let's get right to the discussions and clearly we don't have the videotape we were going to show you. Joining us now from Nashville, we have two sides of this opinion, Erik Cole, the director of Tennessee Citizen Action, which is pushing for fair taxation, and Bill Hobbs with the Tennessee Institute for Public Policy. His group favors spending reform and is against new taxes.

Erik, we're going to go ahead and start with you, OK?

ERIK COLE, TENNESSEE CITIZEN ACTION: OK.

KAGAN: You say no state income tax in Tennessee, and I'm telling you, a lot of people across America are like you kidding? We are moving to Tennessee. Hard to push for more taxes in opposing a state income tax, I would imagine.

COLE: Well, it is a little difficult and but when you consider that we're 50th in the country in education spending, 49th in the country in spending on teacher pay and 50th in the country in community-based long-term care for elderly and disabled Tennesseeans, it's not that hard a sell. We're not taking care of basic services for Tennesseeans and we've got a taxation structure that, frankly, impacts low income people much worse than it does upper income people.

KAGAN: First, let's talk about that future and go to Bill. Bill, the governor pointing out, as he sees it, Tennesseeans are not making a good choice here, that you're not looking at your future, you're not looking at education, you're not looking at kids. Do you think that you're selling those groups short?

BILL HOBBS, TENNESSEE INSTITUTE FOR PUBLIC POLICY: No, actually, I don't. We've been debating this issue now since February of 1999 when the governor first flip-flopped on his promise to oppose an income tax and actually came out and proposed an income tax. And ever since then we've been debating these issues in the state and there is absolutely no evidence, no credible evidence that the people of this state want an income tax. It's also, it violates the state constitution.

KAGAN: What about the point that Erik made right before he was talking about the future, this, the idea of fair burden? Right now most of that tax money comes into a sales tax, which some would say, and maybe, Erik, you can point out here, that it's an unfair burden on the poor, that people who can not afford it as much are paying taxes through taxes on food and clothing and other items like that?

HOBBS: The sales tax is the only tax that is the fairest way to hit every taxpayer. It's also a bit of a misdirection to say that because we have a sales tax and not an income tax that the rich aren't paying or the upper income, upper middle class aren't paying their fair share.

KAGAN: But maybe -- well, and, Erik, why don't you jump in here? You're saying that they're not paying or they're not paying their fair share?

COLE: They're not paying their fair share. If you look at percentage of income and how much they pay as a percentage of their income, you will find people that pay less than the average salary in Tennessee and even down to the poverty level are paying a much larger proportion of their weekly paycheck on sales tax than folks at the upper end of the bracket.

The basic issue is that folks that are at a lower income level spend more on clothes, on groceries and food, basic necessities, as a percentage of their income than folks at the higher end.

KAGAN: Bill, do you agree with those numbers?

HOBBS: You know, there's different ways to look at it. Tennessee's budget, two thirds of Tennessee's budget is actually paid for with federal tax dollars. That still money that comes from Tennessee taxpayers, as well as taxpayers across the country. And the statistics show that 98 percent of all federal income tax dollars are paid for by the upper half of the income rungs.

KAGAN: But within Tennessee, within Tennessee, who is getting the burden, the percentage burden of that sales tax? Is Erik right, within Tennessee are the poor paying a greater percentage?

HOBBS: It depends on, again, what you look at. The poor may spend, the poor, the lower income do not spend as much as somebody who makes a lot more money does on food because they don't buy the same level of food. One person may buy hamburger, another person may buy steak. One person may buy their clothes at Wal-Mart, the upper income person may buy their clothes at the Nordstrom's, something like that.

KAGAN: Meanwhile, I think that one thing both of you can agree on, there is a problem in Tennessee. You guys don't have a state budget. It looks like there might be a special session?

COLE: That's right. They'll come back in October and have to grapple with the revenue shortfall once again. We, they passed a budget yesterday that frankly sells away our future. It uses one time, it uses tobacco money that we, that Tennessee received in our tobacco settlement to pay for one time expenses. It's irresponsible. It adds no new revenue to the budget and does very little to fix this unfair revenue system that we've got.

HOBBS: Daryn, that's one way to look at it and I would agree that the use of the tobacco money to fund ongoing programs was a bit of irresponsible policy. What they should have done is actually cut the budget further. Tennessee...

KAGAN: How about we leave it at that, that you guys are -- since we're out of time -- on a note that you both agree on and we'll wish you and Tennessee

HOBBS: But we have record revenue. People should know that.

KAGAN: How about this? OK.

COLE: Thank you, Daryn.

KAGAN: Why don't you guys, we'll bring you back in October and look at it again when the special session happens.

HOBBS: OK.

COLE: Sounds good.

KAGAN: There you go. State income tax as of now, no state income tax remains in Tennessee. Very much thanks to Bill Hobbs and Erik Cole.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com