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Location: Nashville, Tennessee, United States

5/16/2002

Tennessee is Not Alone
Most states - including states with income taxes - are facing large revenue shortfalls, as this article from today's New York Times shows.

"Faced with a large, unexpected drop in income-tax revenue, states across the country are trying desperately to plug wide budget gaps in ways voters can abide in an election year," the Times reports. "Some are raising cigarette taxes and various fees. Some are cutting spending on the edges or using bookkeeping devices to make the deficits go away. A few have taken drastic measures to avoid raising sales or income taxes or cutting popular programs like education.

Income tax revenue is down, the Times says, because "weakness in the stock market has resulted in smaller receipts from the capital gains tax." Tennessee doesn't tax capital gains, but does levy a tax on stock and bond dividends.

The Times says most states are resorting to spending cuts, reserve funds and creative financing instead of huge tax increases to solve their budget problems. New York's Gov. George Pataki, for example, built his state's reserves during the "fat years" of the 1990s economic boom. Tennessee's Gov. Don Sunquist unwisely spent this state's reserves and even spent surplus revenues during the 1990s.

So, while Tennessee's revenue shortfall is rather small compared to the budget gaps facing other states, Gov. Sundquist's fiscal profligacy and mismanagement has left the state with fewer ways to solve it.