Tenn. GOP leaders press for Hall, estate tax cuts

Friday, December 9, 2011, Vol. 35, No. 49

NASHVILLE (AP) - Republican leaders in the General Assembly plan to forge ahead with efforts to reduce the state's inheritance and Hall income taxes despite Gov. Bill Haslam's concerns that Tennessee's economic situation isn't healthy enough to make up for the lost revenues.

Senate Speaker Ron Ramsey told The Associated Press on Tuesday that he wants to take an incremental approach toward getting rid of the Hall tax on income from interest and dividends.

"I think it is doable," the Blountville Republican said. "Obviously I think we should wait a little longer before we say 'no' to something like this."

Meanwhile, Republican House Speaker Beth Harwell of Nashville said in a phone interview she wants to focus on cutting the state's inheritance tax.

"I respect that the governor has concerns about filling potential budget gaps, but House Republicans have wanted to address this issue for a long time," Harwell said

"The fact tha t we don't have an income tax has done wonders for the state," she said. "The Republican caucus just wants to move that ball down a little bit further and work on specifically the death tax."

Lawmakers took a first step on reducing the Hall tax last session by expanding a tax exemption on the first $26,200 of seniors' income from stocks and bonds. The move is projected to cost about $1.75 million in state and local revenues.

Tennessee collected about $189 million in Hall income taxes in the last budget year. About a third of the money is sent back to the governments of the counties and cities where those who paid the tax live.

The inheritance tax applies to estates worth more than $1 million, and the state collected about $107 million from the levy last budget year.

"There's no doubt that these taxes chase away retirees, and break up family farms and family businesses," Harwell said.

The estate and Hall income taxes combined to make up about 2.8 percent of the state's total revenue collections in the 2010-2011 budget year.

Haslam said in an AP interview last week that he doesn't expect to have the fiscal flexibility to cut the Hall or estate taxes in the upcoming budget, though he said he agrees with cutting both taxes in the long term.

"Right now I don't have a way to replace that revenue," the Republican governor said. "We're still in tough economic times."

Haslam has warned that while state revenues are improving, they haven't grown fast enough to keep up with expenses. The governor has asked each department to plan for making 5 percent in spending reductions, though he has said he doesn't expect to have to make cuts that deep.

Harwell said she has spoken with the governor about her chamber's hope to cut the inheritance tax.

"He just wants - as a governor should - to be very cautious that he doesn't do anything to get us in trouble with our budget, and I don't either," she said. "We w ill continue to work with the administration to make sure we don't do anything irresponsible."

House Majority Leader Gerald McCormick said he would have preferred for the governor to wait for a more complete picture of state finances to develop before ruling out tax reductions.

"Yeah, I would rather have seen him wait a little longer," said McCormick, R-Chattanooga. "But he got elected governor, so I guess he can make his decision whenever he wants to."