Revenue & Reality
Tennessee's latest monthly revenue data is out and it is a shocker. Not for what it says, but for what it ignores. And that's the shocking fact that if the legislature had approved the Sundquist Administration's proposed spending for this current fiscal year, the state would be facing a shortfall of over $1 billion, rather than the projected $450 million shortfall that can be largely dealt with by using state reserve funds intended for such situations.

The latest revenue data also indicates that the state's dependence on the sales tax as its primary source of revenue is NOT the cause of the state's deficits.

Proponents of the income tax say the sales tax doesn't "grow" with the economy. But that's a lie.

The truth is, sales tax revenue has grown even during the economic downturn, and with Tennessee and the nation now entering a new period of economic strength, the sales tax too is poised to generate strong revenue growth.

To make sales tax revenue look worse than it really is, the administration continues to compare actual revenue to the "estimates" on which the budget is based. Therein lies a big indicator of the true nature of the state's budget crisis.

Here is the truth about the sales tax: Revenue is up slightly over the previous fiscal year for the period of August through April, $3.466 billion compared to $3.461 billion. For the month of April, sales tax revenue rose nearly 1 percent.

But last year the Legislature adopted a budget that estimated sales tax revenue would grow about 3 percent this year, based on advice from the administration-controlled State Funding Board. And the administration, remember, proposed a budget that required even more revenue than we have now - some $600 million more. Wisely, the legislature rejected that request. Unwisely, the legislature chose to pass a budget that used one-time funds to fund about $400 million worth of recurring programs. Had they simply reduced the budget by that amount and used only recurring funds for recurring progams, the current budget would be balanced and we would not be facing a shortfall.

It is the administration's desire to spend too much that causes shortfalls, deficits and budget crises, not the sales tax, which has proven to be most reliable major source of revenue the state has.

Historically, the state has enjoyed annual revenue growth from the sales tax in the 6 percent to 7 percent range - which is sufficient to handle the rising cost of government due to rising population and inflation. The same inflation that increases the cost of government also increases the cost of products on which people pay the sales tax, meaning they pay more sales taxes. If government learned to live within its means, those increased revenues would help government absorb the impact of inflation on its budget.

Tennessee's budget problem is not that it's people are taxed too little, but that its governor and legislature spend too much.