Sales Tax Declines a Cause for Caution

The outlook for the state’s revenue is “bleak,” in the words of one state official.

A report to the legislative committee charged with watching over state money shows a sharp decline in sales tax collections, with no real sign of improvement.

The sales tax is the cornerstone of Tennessee’s revenue structure. It’s the largest and most stable tax stream in the state. And for months on end, it’s pulled in millions less than anticipated.

Business taxes are doing better than projected. But in his analysis to the Joint Fiscal Review Committee, staff director James White warned that the amount brought in by those taxes tends to rise and fall dramatically. He says the sales tax is the best sign of how the state is doing, financially.

“The fact that the sales tax is significantly underperforming should be a cause of ongoing concern and caution when we look at how the state is doing.”

White warned the committee that sales tax collections won’t pick up without significant job growth. And considering that the current recession is predicted to end with a “jobless recovery,” he says a turnaround in sales tax revenue will likely lag behind the rest of the economy.

White also presented a series of graphs. His chart of consumer spending shows the first substantial downtick since World War II, while the line plotting personal savings takes a sharp turn up. White says that poses a problem for the state.

“Savings is a good idea for us as individuals. For the economy as a whole and to have growth in the economy it acts as a brake on that, so it makes it very difficult for sales tax collections to grow.”

October sales tax revenues were more than 38 million dollars below projections, and nearly 8-percent less than in the same month last year.

Please keep your community civil. Comments will be moderated prior to posting, and Nashville Public Radio reserves the right to approve them at its discretion. Comments containing links promoting goods, services - even noble organizations - will not be published. Your comments may include external links, but all comments with links will be delayed as they are reviewed. Comments containing profanity will be rejected.