Bill Haslam is a former businessman and mayor of Knoxville. As governor, his best fiscal move so far is to repeal Tennessee’s inheritance tax. Haslam says that the tax is prompting “a whole lot of people” to leave the state because “it’s cheaper to die in Florida.”114 Haslam originally called for an increase in the exemption amount, but he ultimately agreed to a full phase-out of the inheritance tax over three years. Haslam also signed a small cut in the sales tax on groceries. Balancing out those tax cuts, Haslam approved an increase in the state’s hospital tax from 3.5 to 4.5 percent of hospital net income. Haslam has also been leading the charge to increase taxes on Internet sales.115 State general fund spending rose about 14 percent during Haslam’s first year in office, which was a key factor in the governor’s low grade.
In Gov. Haslam's defence, his low grade is a consequence of his response to the perverse incentives set up by the Medicaid matching grants, that pay $2 for every $1 of state money. We have blogged about this before:
Sunday, February 7, 2010If you ever wonder why the government keeps growing when most people want it to shrink, look no further than Tennessee's Medicaid program, "TennCare." Tennessee is facing a budget short fall, and the usual reaction would be to cut back spending. In fact, the Governor has proposed steep cuts in funding, which would cut revenue to the state's hospitals who provide services to TennCare patients.
The state hospitals have come up with a clever alternate plan. Instead of cutting back TennCare spending, they want to increase it, financed by a tax on the state's hospitals.
Because the Federal government matches spending (with $2 for every dollar spent on TennCare), the taxes paid by the hospitals would be more than offset with increased revenue coming to TennCare from the federal government: