Beavers: Phase out food tax

February 21, 2006
Believing she has found "a third way" to resolve the long-running dispute over whether to keep or eliminate the sales tax on food in the state, Sen. Mae Beavers has introduced a bill to slowly phase out the tax over the next 12 years.
But her proposal has not won over many of the groups who have long championed ending the sales tax on food, suggesting her plan still lacks broad support.
Tennessee is one of 12 states that taxes the sale of food, and one of seven states that has a food tax in addition to a separate sales tax, according to the Federation of Tax Administrators.
At an overall average rate of 8.4 percent, Tennesseans pay more taxes on food than residents of any other state.
Beavers' bill calls for reducing the 6-percent state sales tax on food by one-half percent every fiscal year until it is eliminated in 2018.
"Over the years a number of people have tried to take the sales tax off food, but it never happened because someone would say it was impossible to do immediately without either bankrupting the state or imposing an income tax," Beavers' said in a press release.
Because it has no tax on income, Tennessee relies on sales taxes for more of its revenue than most other states. In fact, the 6-percent food tax accounted for $443.1 million, or 4.6 percent of all state taxes collected in the last fiscal year, the revenue department showed.
But Beavers believes it is time to look beyond the all-or-none approach.
"There is a third way to look at this," the Mt. Juliet Republican said in her press release.
She along with Senate Majority Leader Ron Ramsey, R-Blountville, said reducing the tax gradually can, "rein in the annual overspending in state government and the state can learn to live within its means," according to her statement.
Beavers said Monday as far as she knows, the idea of gradual elimination has never been floated in the state Legislature.
"When it has been proposed in the past it was to wipe it all out at one time," she said, adding past studies have shown that bills to cut the tax altogether would have cost the state $400 million in lost revenue in the first year alone.
Based on a fiscal review of a proposal last year to oust the tax completely, Beavers said a one-year reduction of one-half a percent would cost somewhere around $35 million next year.
"Which is much more palatable than over $400 million," Beavers said. "And that's kind of a drop in the bucket. Revenues are really coming in very well right now. There's no reason that we couldn't do this.
"We shouldn't have a problem finding $35 million to cut from the budget," she added.
But two longtime proponents of ending the practice of taxing Tennesseans on food they buy said they could not support Beavers' proposal, because it does not offer any means for making up for lost revenue.
"We understand what Sen. Beavers is trying to do, and it's not that we don't think we should reduce the food tax," said Mary Liz Knish, spokesperson for the Tennessee chapter of the AARP. "But if we don't replace it with something else that's a broader-based income source that benefits everyone, then we're just robbing Peter to pay Paul.
"We'll end up hurting the same people we want to help," she said.
Brian Miller, the executive director of Tennesseans for Fair Taxation, agreed.
"I would say that while we appreciate Sen. Beaver's desire to cut the food tax … our goal is to make sure that it is done in a revenue-neutral and responsible way," Miller said.
And based on his read of the bill, Miller said Beaver's bill – Senate Bill 2758 – does not meet that criteria.
"We don't want to cut funding for our schools, public health programs and other important public services in the process," Miller said.
In response, Beavers pointed to rising revenues across the board in Tennessee as well as a potential increase in sales tax revenues as justification for her plan.
"And as far as the fiscal impact, I think we have to take into consideration also that if you freed up sales tax on food, that would give people other disposable income to spend on other things that they would be paying sales tax on," Beavers said.
But that will not solve the "border drain," problem, Knish said.
"People right now are getting their other items as well as food across the borders," she said. "And I don't know if our system can bear another increase in sales takes."
Although spokesman for Gov. Phil Bredesen have indicated in the past he is not in favor of eliminating the food tax, Beavers said she hoped he would be receptive to her plan.
"I think if he ever wanted to try to help out as far as taking the tax off of food that this is a good way to get it started without it having a huge impact on the budget," she said.
Staff Writer Jared Allen can be reached at 444-3952 ext. 15 or by e-mail at jared.allen@lebanondemocrat.com.