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Location: Nashville, Tennessee, United States


Bredesen's Right
Phil Bredesen, the leading Democrat candidate for governor in Tennessee, says the cause of Tennessee's budget deficit is, in fact, unsustainably large spending growth. During the long economic boom of the 1990s, Bredesen says, state government joined many businesses in forgetting there is still a business cycle.

Bredesen tells an audience in Greeneville, "We’re a low-tax state," adding that voters seem to want that to continue and for state government that means "we have to have discipline." Bredesen singles out TennCare spending, including a rich benefit package that is far better than most people get through their private or employer-sponsored health plans, as a leading cause of the state's budget mess.


"The doomsayers were wrong. It was not the worst Christmas in 11 years." - Jeffrey Feiner, retail stock analyst at Lehman Brothers.

Wrong Again!
Retailers had a Merry Christmas after all

The Jan. 11 Tennessean carries a wire services story that says "a surge of last-minute shopping saved many retailers from a disastrous holiday performance, but the heavy discounting that fueled it was expected to hurt fourth-quarter profits." However, the longer and more detailed story in the New York Times Jan. 11 reports that same-store retail sales gains of 2.3 percent in December (compared to Dec. 2000) while "hardly dizzying growth" was cause for many retailers to raise their earnings guidance for the fourth quarter.

The Goldman Sachs Retail Index's tally of 2.3 percent growth was far better than the 1.5 percent growth expected by Wall Street analysts and was "enough to let the nation's merchants and Wall Street investors breathe a sigh of relief," the Times says. Analysts had expected the worst Christmas retail season in 11 years - since 1990, during the last recession. Instead, as the Tennessean reports, the increase in sales was the worst since 1995.

A little perspective is warranted: 1995 was not a recession year. In fact, the economy was growing in 1995, and its growth rate was accelerating. The economy - and retail sales - continued to grow in 1996, 1997, 1998, 1999 and 2000. And, most likely, 2001.

The takeaway from all that is this: retail sales grew last Christmas compared to the year before, just as they have for more than a decade. The just-ended holiday sales season enjoyed solid growth similar to that of 1995, at the eve of the acceleration of the economic boom in the late 1990s. So much for the doomsayers. So much for the recession.


"We're nonetheless pleased Mr. Daschle made his speech. It took a step toward clarifying for voters that the major fault line between Republicans and Democrats continues to be taxes, in particular as a proxy for the size of government. That's a good debate to have come November." - Wall Street Journal editorial. Jan. 9, 2002

Daschle's Dubious Economics

Senate Majority Leader Tom Daschle made a speech recently blaming the bad economy on President Bush's tax cuts. In an editorial, "The Daschle Economy," The Wall Street Journal highlights the speech's surplus of nonsense with a list of things Daschle blames on the Bush tax cuts that includes a recession that "officially started last March, well before the tax cuts passed in June."

WSJ also notes that "the plunge in stocks and downturn in manufacturing started well before that in 2000, when Bill Clinton was still President" and, "most of the Bush tax cuts haven't even become law yet; they're phased in over several years, with the largest cuts coming after 2004."

The WSJ notes that the biggest part of the tax cut to take effect so far was those $300 to $600 rebate checks - which Daschle's Democrats demanded - and which took about $40 billion out of the projected budget surplus last year. Yet, WSJ notes, Daschle "could always propose that Americans send their rebate checks back. But somehow that didn't make it into the Daschlenomics speech either."

The editorial correctly places the blame for the disappearing deficit on the Democrats' spending - and notes that Daschle himself is proposing a variety of spending increases and presides over a slim Senate majority that "berates Mr. Bush for refusing to spend more on just about everything."


"My philosophy is that this is a brand-new medium for the 21st century, which has the possibility of really empowering people educationally and commercially. And we should be striving for that goal, as opposed to trying to find ways to enrich government more, because there's no limit to the amount of riches that government wants."- Virginia Gov. Jim Gilmore

Defending You Against Internet Taxes

As chairman of the Advisory Commission on Electronic Commerce, Virginia Gov. James Gilmore led the successful effort to block the commission from recommending Congress adopt or allow any new Internet taxes. He's a big reason why the moratorium on new Internet taxes was extended - and why most online purchases remain free of state sales taxes.

Unfortunately, if you live in Tennessee, your governor favors creating new taxes on things you buy over the Internet from merchants in other states. Even worse, the leading Republican candidate for governor in Tennessee, U.S. Rep. Van Hilleary, recently spoke favorably about the hundreds of millions of dollars in new revenue the state would take out of average Tennessean's pockets if Congress were to allow states to impose new taxes that are now deemed by the U.S. Supreme Court to be unconstitutional. Hilleary's stance on Internet sales taxes is dissected in my recent City Paper column,
Has GOP's Hilleary made gaffe on Internet taxes?

Virginia's current governor has made no such gaffe. He has an intelligent perspective and correct position on the issue, as demonstrated in a
wide-ranging interview with News.com, Gilmore explains why the Internet should remain free of new taxes - and why online sales shouldn't be hit with new sales taxes that are currently prohibited by the U.S. Constitution and the Supreme Court's 1992 Quill decision. Some key quotes:

"Governments may very well have rushed in to do a patchwork taxation all across the country, adding increased burdens on the Internet and on individual people who are using the Internet."

"The truth of the matter is that the opportunities and benefits of a strengthened Internet industry outweigh any type of theoretical loss of revenue that there might be."

"I think that it's clear that we should not be taxing Internet access. I don't think we should be taxing downloaded products. And I don't think that we should be taxing retail either. In terms of the taxation of individual products, the main point I'm coming to is there (are) still plenty of opportunities for the gaining of revenue through the growth of the industry, which will be tamped down by trying to tax people."

"I think that you are going to see that all 50 states begin to develop these industries more and more. And that should be their goal, instead of simply trying to tax individual citizens, not just of their own state, but of other states as well. They should be working to build up that industry within their individual states."

"If a purchaser chooses to buy a remote good, from whatever location, then we are trying to benefit the working men and women of the country and individuals of the country who deserve an opportunity to engage in commerce with the least possible tax burden."

"The goal of the country ought to be to spread the benefit of the Internet as widely as possible. But one thing we know for sure, and that is that if you impose taxes on either access or downloaded products or even on traditional retail, you will discourage people who have the least money to spend from utilizing the Internet."

Gilmore also addresses the issue of "use" taxes - the tax states created to get around the Commerce Clause of the U.S. Constitution, which forbids states from levying cross-border taxes. Because they can't tax purchases citizens make in other states, most states passed a "use" tax that levies the same tax rate on items purchased out of state once they are brought into the state. Problem is, they are very difficult to collect.

Gilmore believes use taxes "should be eliminated," saying, "The actual collection of use taxes is small, relative to all other taxation that states and the federal government take in. It's not much money. And they could do without that money and just eliminate the use tax altogether and further free individuals. But that hasn't, of course, occurred yet. In any case, what I would caution against is constant efforts to impose use taxes upon individual citizens."


"We may have hit bottom here, to some extent. We're facing two quarters - the fourth of 2001 and the first of 2002 - of close to zero growth. But this may be the first recession we've gotten through without two quarters of consecutive shrinking gross domestic product." - Lara Rhame, economist, Brown Brothers Harriman.

Tennessee's Chicken Little

University of Tennessee economist Bill Fox contends that rising consumer confidence in the economy won’t translate into higher spending. Of course, as one of the state's biggest cheerleaders for a state income tax, Fox can’t afford to admit the economy’s improvement might lead to higher sales tax revenues – he’s been working so hard to convince lawmakers, the media and taxpayers that the state is rushing toward huge deficits and needs an income tax.

Compare what Fox told The Tennessean
in late December with what other economists are saying:

Fox: "People are saying they feel better about the economy, but I don't think that will translate into higher consumer spending in the near term."

Sung Won Sohn, chief economist at Wells Fargo & Co.: "Consumers are once again feeling better and will become the locomotive pulling the economy out of the current recession."

Lynn Franco
, director of the Conference Board's Consumer Research Center: "Consumers' short-term optimism is no longer at recession levels, and the upward trend signals that the economy may be close to bottoming out and that a rebound by mid-2002 is likely."

Joe Liro
, economist, Stone & McCarthy Research Associates, a financial-markets research firm: “The U.S. economy is often a thing of beauty as it comes out of recession and renews expansion. We expect to see such a transition during 2002's first half, leading to very strong growth by year's end."