Tennessee tax fight a warning to others: Tennesseans of all political stripes are taking sides on a proposal to implement a state income tax. Spenders have run up a huge $1 billion state budget shortfall

Trying to avoid another assault by enraged income-tax protesters who poured through the Tennessee Capitol in July, Republican Gov. Don Sundquist, now the champion of those seeking a state income tax, is being charged by Tennessee populists with attempting to make a secret deal with the leadership of the state Legislature. Income-tax protesters are livid at what they consider Sundquist's duplicity, citing this excerpt from Sundquist's State of the State address in February 1999: "You will hear from those who say we ought to preserve special breaks for some businesses and impose an income tax on working Tennesseans. That's not tax relief; it's not tax reform; it's not tax simplification; and it's not tax fairness. All an income tax does is raise the tax burden on Tennesseans and create a way to finance the easy and endless expansion of government. Tennessee does not need a state income tax"

But, according to Sundquist press aide Sean Williams, "That was before he knew about the state's problems. He's admitted that he was wrong. He's trying to fund education and health-care needs in Tennessee." The trouble with that, say tax critics, is that when Sundquist delivered the speech he was not entering his first term but his second. He knew where the revenue came from and where it went.

So when Sundquist went back on his antitax pledge it sent tax protesters storming through the Capitol on July 12, breaking windows and causing other damage while legislators debated a state income tax. As American Indians among their numbers beat drums in rebellion, income-tax protesters made their views known in no uncertain terms. "The opinion of Tennesseans is very clear," Lloyd Daugherty of the Tennessee Conservative Union told Fox News. "No income tax! No income tax! No income tax!"

According to figures from the Federation of Tax Administrators, Tennessee is one of only eight states which has no real state income tax. Alaska, Florida, Nevada, South Dakota, Texas, Washington state and Wyoming are the the others still holding out on the state income-tax issue. Rhode Island's tax is pegged to federal tax liability (currently 25.5 percent but scheduled to decrease to 24 percent next year). Vermont's tax is calculated the same way, though if an individual's Vermont tax liability for any year exceeds that determinable under federal tax law in effect on Dec. 31, 1999, the taxpayer is entitled to a credit of 106 percent of the excess tax. Got that?

Indications are, however, that despite legislative denials, Tennessee may be the next state to drop off the list of eight. And Sundquist is the one who brought the proposal to the table. Tennessee's budget crunch is nearly without parallel as the state faces a $300 million shortfall. "Next year's budget is likely to fall as much as a $1 billion short," says House Democratic Caucus Chairman Randy Rinks (Savannah). "We're looking at cutting something like 12 agencies if this thing isn't resolved. Something's got to happen."

According to Dana Keeton, public information officer for the Tennessee Department of Safety, even the state police have felt the crunch. "We lost $5.3 million in the budget cuts. We're 35 to 40 officers short across the state and the events of 9-11 have strained our resources even more" she tells INSIGHT. A fall class of 50 new highway patrolmen canceled for lack of money was restored thanks to the federal Homeland Security Initiative. "Thank God for that program. We've had to call up reservists, and that with the overtime is a killer. The department's hurting; we're all hurting," says Keeton.

The major drag on the profligate Tennessee budget is the failed TennCare program, former governor and Clinton adviser Ned McWherter's experiment to assist Hillary Rodham Clinton's abortive attempt at health-care reform. The Clinton-inspired initiative has been nothing short of a disaster for Tennessee, say fiscal critics.

As early as 1999, the Nashville Business Journal was bemoaning fraud and abuse in the TennCare system. "The administration of Gov. Don Sundquist," said the Journal, "has managed the program so poorly that it can't even assure taxpayers that everyone presently enjoying TennCare's generous benefits actually qualifies." The Jackson Sun put it more succinctly: "Compensation problems; gaps in service to the poor. Add allegations of mismanagement, rapid turnover at the top of TennCare and fraud and abuse, and most Tennesseans know there's something wrong with the program."

Tennessee budget figures show that the state spends nearly $9 billion a year on health and human services, with the vast bulk going to TennCare. Allegations that individual state legislators have profited from TennCare are rife across the state. Yet TennCare is the one program where Sundquist would not tolerate cuts. In fact, of the $207 million that he approved in agency increases, $160 million went to try to bring the bleeding program into the black as a Republican governor, say critics, allowed a Clinton legacy to destroy the state budget.