Ramsey predicts compromise on cigarette tax hike, food tax cut

Hank Hayes • Mar 30, 2007 at 12:33 PM

Tennessee Gov. Phil Bredesen said "no deal" for weeks to a cut in the state's 6 percent sales tax on food in exchange for a sizable cigarette tax hike, but a deal between lawmakers and Bredesen appears likely, Lt. Gov. Ron Ramsey said Thursday.

"I believe he's realized that there may be some compromise in the end," Ramsey, a Blountville Republican, said of Bredesen, a Democrat. "We've made it plain in the Senate Republican Caucus that we want some kind of tax relief to give back some things we overcollected."

In public events held this week, Bredesen has advocated a 40 cent cigarette tax hike to generate $219 million for his "Schools First" initiative in K-12 and higher education.

"The governor has called his program ‘Schools First.' In reality we've funded everything but education first. We've funded roads, TennCare ... and education last," Ramsey said.

A vote on increasing the cigarette tax from 20 to 60 cents per pack was delayed in the Senate Finance Committee on Tuesday when it became clear there weren't enough votes to advance it to a full Senate vote.

A Tennessee Democratic Party release then suggested Senate Republicans might be "playing politics with our children's future" and pointed out that Tennessee is 45th in education funding while having the nation's fourth-lowest cigarette tax.

Ramsey said the feedback coming into his office favors the cigarette tax hike.

"If there is ever a tax where you can get a raise and be politically palatable, this is it. ... It raises revenue and keeps teenagers from smoking," he said. "But I have talked to several people in convenience stores in the area, and they feel like if you raise cigarette taxes up to $4 a carton, people will go across the state line. The e-mails are running ahead in the people who want the tax."

Ramsey said Republicans haven't specified how large of a cigarette tax hike they will support, nor how much of the sales tax on food they want cut.

"It may even come down to the point that we take the sales tax off food for a couple months, say, in November or December," Ramsey speculated.

Ramsey said the details of an anticipated swap should become clearer in early May when the state funding board meets to evaluate state revenue projections.

"Almost everyone expects there will be more revenue than projected because the economy is doing well," Ramsey said of the funding board's meeting.

A budget briefing document circulated by the Bredesen administration showed that without a cigarette tax increase, the state could stand to lose nearly $40 million in the next fiscal year from a half-cent cut in the sales tax on food.

Tennesseans for Fair Taxation (TFT), an interest group that previously advocated a state income tax, favors a decrease in the sales tax on food.

"With 50 percent of the state's population living in counties that border another state, cross-border shopping, or the loss of sales and tax revenue over state lines, should be an important concern to state legislators," a TFT news release said. "Increasingly, local grocers operating along the state line are joining the call for a lower food tax in Tennessee. ... Every state that borders Tennessee has a lower food tax, with the most serious border-drain problems occurring along the 350-mile border with Kentucky where there is no food tax at all.

"Other grocers near the state lines of Virginia, North Carolina and Georgia have had similar experiences. All three of these states tax food at between 2 and 2.5 percent. ... Soon the border-drain problem will begin affecting grocers in Tennessee's largest city, Memphis. A bill to cut the Arkansas food tax in half was passed earlier this year and will take effect on July 1."

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