Income tax suffers defeat in house - legislators likely to vote on it again

By Thomas Wilson
STAR STAFF
twilson@starhq.com

   Once more into the breach goes the Tennessee General Assembly.
   The House rejected a flat 4.5 percent income tax bill on Wednesday afternoon while a $480 million deficit by June 30 in the latest battle to determine Tennessee's future tax structure.
   However, balancing tenuous budgets are not new challenges to state lawmakers, according to one upstate senator.
   "It's not hard in a common sense way to sit down and do this," Sen. Dewey "Rusty" Crowe, R-Johnson City, told the STAR Wednesday evening.
   "(Governor Ned) McWherter did it all the time. Sundquist did it in his first four years in office.
   "But for the people who are pushing this income tax, they care more about what they want than about the people of this state."
   The Associated Press reported that House voted 49-45 against the bill 2957, with four members not voting. The bill, which needed 50 votes to pass, was referred back to the House Calendar and Rules Committee.
   Scheduled to have gone into effect on Jan. 1, the income tax did not apply to single filers' first $15,000 of annual income.
   Married couples filing jointly had an exemption of $30,000 while each dependent carried a $1,500 deduction.
   The proposed bill called for the repeal of state and local sales taxes from food, nonprescription drugs and articles of clothing that cost less than $100.
   It also would have eliminated the Hall Tax on investment income but included half of taxpayers' capital gains as taxable income.
   Taxes on alcoholic beverages would have increased 10 percent, and on cigarettes from 13 cents to 20 cents a pack.
   The income tax was projected to have raised between $1.1 billion and $1.2 billion, according to tax bill sponsors.
   Crowe said the bill was far from dead.
   "They will bring it up again next week, and I guess in the meantime they will twist arms," he said, referring to legislators in favor of a state income tax.
   "My plan is to let the people be a part of the constitutional convention this August so we can decide what direction we want to take in the 21st century."
   The House employed a senate bill that was passed last week, said Crowe.
   Had the House bill passed, the Senate would have needed only a majority vote to pass the legislation and send the bill to Gov. Don Sundquist's desk.
   Crowe said when he left the Senator chamber, the clamor of colleagues suggested his proposal of allowing constitutional convention to determine the state's tax structure was gaining momentum.
   "People were saying 'it looks like the people are going to have a part of this instead of getting it shoved down their throats,'" said Crowe, who has repeatedly voted against a personal income tax.
   Tennessee is one of only seven states without a tax on personal income.
   Tennesseans could have deducted the state income tax from their federal income tax returns.
   As a bridge, the sales tax would have gone up by a penny, to 7 cents on the dollar, from July 1 until Dec. 31, 2002.
   "We're going to be down here fighting because, in essence, the group who wants the tax are driving our state to the brink of disaster," he added.
   Crowe said a possible scenario would allow for a projected two percent revenue growth, an increase of sin tax, and a two percent or less spending cut from each executive department.
   He also noted they could set the local option sales tax for each municipality at 2.50 percent.
   Currently, each city and county may set their own local option number up to 2.75 percent on top of the state's six percent.
   Those measures would generate roughly $750 million for the fiscal year, according to Crowe.
   "Doing that you haven't hurt anybody and you've solved your problems," he said. "You've got enough money there to carry you through the recession."
   If the Legislature does not pass a new spending measure, the so-called Downswing of Government Services or "DOGS" budget bill could go into effect that would slash approximate $775 million from current spending numbers.
   However, Crowe said he did not know of one senator -- including the bill's sponsor -- who would be willing to vote for such "a drastic cut" in government.
   "I do think prudent cuts, common sense cuts are fine," he said. "'Dogs' is an effort to scare people, and they're scared enough."