Supporters say food tax swap proposal would break even

Some lawmakers had expressed concern over previous estimates showing the state would collect $31 million in extra revenue in the swap.

The proposal would cut in half the state’s portion of the tax on groceries to 3 percent, while increasing the tax on each cigarette from 1 cent to 3.15 cents. The cigarette tax would then increase by 1 cent per pack each year after that.

“We believe that this is not only good tax policy for this state, but its also good health care policy,” said Rep. Gary Odom, D-Nashville.

Reducing the tax would decrease state revenues by $226 million, while the initial cigarette tax increase would lead to $227 million in new collections, according to an analysis by the Legislature’s Fiscal Review Committee.

The subsequent tax increases are meant to offset decreasing demand for cigarettes.

The proposal would also call on the state Department of Revenue to come up with a formula to keep local governments from losing any revenue.

Tennesseans for Fair Taxation and other groups working to end the state’s tax on food say Tennessee has the nation’s highest average food tax at 8.4 percent and one of the lowest cigarette taxes at 20 cents a pack.

Local government sales tax add-ons of up to 2.75 percent would not be affected by the measure.

Beyond being “revenue neutral,” Odom said he would expect Tennessee’s grocery stores to benefit from a decreased food tax as they compete with neighbors with lower taxes. Kentucky has no tax on groceries.

“(The fiscal review) does not even take into account the leakage we have on our borders … ,” Odom said. “We have got to be losing revenue on those border areas, especially with Kentucky, where people are buying the food across the state line and saving a substantial amount of money.”

The proposal has not gained the support of Gov. Phil Bredesen, who has said he would rather see revenue from an increase in cigarette taxes to pay for health insurance for the working poor. Covering Tennessee’s uninsured population would be a more targeted way to help improve the standard of living for those who need it most, the governor has said.

But Bredesen has been careful to point out that he is not endorsing an immediate increase on the cigarette tax, and that such a hike is not part of a sweeping health insurance proposal he expected to introduce soon.

The House Finance Budget Subcommittee deferred action on the bill Wednesday to further study the fiscal impact.

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See HB3611 on the General Assembly’s Web site at: http://www.legislature.state.tn.us/