Republican gubernatorial candidate Van Hilleary last week trumped his redundant “fictitious myth” catchphrase with a shockingly underreported statement saying that he shouldn’t have to explain his political positions.
Speaking to a group at Northeast State Technical Community College in Blountville, Hilleary said that if TennCare is reformed, the state will come close to solving its budget problem. He went on to say that if TennCare cuts aren’t enough, he would find another revenue source “that will not put us at a competitive disadvantage with other neighboring states.”
A few minutes later, a reporter asked Hilleary what “revenue sources” he was talking about, a logical question considering the candidate had just ruled out an income tax, a tax on services and a statewide property tax. “It should be enough that a Republican running for governor tells you that will happen,” Hilleary said, according to two reporters and one of the administrators present.
Hilleary’s comment might seem a bit surprising, but it’s not the first time the congressman has left people scratching their heads.
Last month, Hilleary spoke at the annual meeting of the Tennessee Association of Business (TAB), telling the group of business leaders that he favors lower taxes and less government spending and that he admires people who start their own companies. But it was the details—big ones—that Hilleary had the most difficult time with:
♦ Hilleary said during the TAB speech that International Comfort Products closed its Lewisburg air conditioner plant, laying off 1,600 workers in the process, because of Tennessee’s high workers’ compensation taxes. In fact, ICP closed its Lewisburg plant because its parent company thought it no longer needed it. In 1999, Carrier Corp., which already had a manufacturing plant near Memphis, bought ICP for $720 million. Carrier closed the Lewisburg plant because of the recession and overcapacity. “[Workers’ compensation taxes were] not a factor in our decision-making,” says Carrier spokesman John Mandyck.
♦ Hilleary said Tennessee spends more money on prescription drugs than the state of California, an absurd notion. Comparing TennCare, a managed care program run by companies, to state-run Medicaid programs isn’t a simple task. But BlueCross BlueShield Tennessee, the state’s largest TennCare MCO, says that its 290,000 TennCare recipients spend an average of $450 a year on pharmacy costs. There are 1.4 million people enrolled in TennCare, which means that Tennessee is spending an estimated $630 million a year in state and federal dollars on prescription drugs. Meanwhile, California spends about $2.8 billion on prescription drugs through its Medicaid program, according to the California Legislative Analyst’s Office.
♦ Hilleary said the TennCare budget had increased 50 percent over the last three years. In fact, the TennCare budget rose from $3.9 billion in 1999 to $5.6 billion in 2002—a 44 percent increase. One of the main reasons for the budgetary hike was a 1999 Price Waterhouse study that concluded that the TennCare program was underfunded.
♦ Hilleary used a chart to compare the increase in state government revenue to the rate of inflation and Tennessee’s population growth from the 1993 fiscal year to the present, a gimmick meant to convey that spending has risen more than it should. Knoxville News-Sentinel reporter Tom Humphrey researched the chart, finding a sizeable error—that the first year’s spending was understated to the tune of about $300 million. Hilleary still maintains that his premise—that state government spending has outdistanced inflation and population increases—is accurate.
♦ Hilleary downplayed the amount of tax “leakage” that Tennessee loses to bordering states because of lower sales tax rates in those states. In fact, one study estimates that the state is losing $79 million in taxes because of cross-border shopping, and another $102 million through catalog sales. Hilleary conceded that Internet sales must be addressed, but said he thought states would be collecting taxes on Internet sales within three or four years—an optimistic suggestion, given that no group, including the National Conference of State Legislatures, has figured out a way to do it that would capture all such sales.
Perhaps Hilleary’s most curious comment came during his defense of the sales tax. He claimed that the tax isn’t as regressive as some argue, saying that rich people spend more money on consumption than the poor. “If you’re rich, you’re more likely to buy a washer and dryer with all the bells and whistles” than a stripped down model, he said.
Most economists would argue that the notion that sales taxes aren’t terribly regressive—especially in a state that imposes sales tax on groceries—is a curious precept.
“As a general rule, studies have shown that percentage of consumption declines rapidly as incomes rise,” says John Vrooman, a senior economics lecturer at Vanderbilt. “A person who makes $20,000 a year is likely to spend everything he makes on consumption. A person who makes $100,000 a year might spend $50,000 on consumption, but he is more likely to save the rest of his money, so his effective sales tax rate is likely to be about half the rate of the guy who makes $20,000 a year. ”
GOP candidate Jim Henry is seizing on his opponent’s factual deficiencies. “His facts and figures simply do not add up,” Henry says. “He may play that funny money game in Washinton, but we in Tennessee expect our leaders to give it to us straight.”
