Expert: End to tax break would hit Tennessee hard

9:52 am | November 30, 2012

NASHVILLE (AP) — A tax expert is warning state officials that Tennessee would be among the hardest-hit states if federal officials don’t resolve the so-called fiscal cliff.

Dr. Stan Chervin updated Gov. Bill Haslam and other state officials this week, saying states that depend heavily on sales taxes for revenue would feel the most stress if tax breaks are not extended.

He said if the Bush-era tax cuts and newer payroll tax reductions are not extended, Tennessee residents will have less disposable income.

“So what are you going to do with less? You’re probably going to spend less,” Chervin said. “All those things are going to reduce take-home (money) if they go away, and that’s what we use to buy stuff. And that’s how we run the state.”

He noted that about 54 cents of each tax dollar in Tennessee comes from the state sales tax. Tennessee has no broad-based income tax, like most other states do.

Chervin is a senior research consultant with the Tennessee Advisory Commission on Intergovernmental Relations.

The same information was outlined earlier by Chervin to the commission, which is made up of state legislators and local government officials.

David Thurman, Haslam’s budget director, said Tennessee could expect a cut in federal dollars flowing to state programs of more than $100 million. That’s up from an earlier administration projection of $85 million.

Among estimated cuts to programs would be $22 million in aid to low-income students, a similar reduction in special education funding, $8.9 million less in Head Start funding and the same amount of loss in nutritional aid to low-income mothers and preschool-age children.

Reuben Kyle, a Middle Tennessee State University economist, said across-the-board federal cuts, if an agreement isn’t reached, would affect the state beyond government operations. He said Defense Department spending in Tennessee is projected to fall by $320 million.

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