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Haslam Proposes Raising Gas Tax for Roads While Cutting Some Sales Tax

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Tennessee Governor Bill Haslam is proposing to raise the state’s tax on each gallon of gasoline by 7 cents while cutting sales tax on groceries and income from earnings on stocks and bonds. 

Haslam says average motorists would pay an extra $4 dollars more per month as part of his plan to generate $278 million annually in new money to pay for road projects around the state.

Nashville Mayor Megan Barry is lauding Haslam’s proposal. Barry says she believes Nashville residents are willing to pay for a mass transit system that meets community needs.

The governor says he would balance the gas tax increase with proposed cuts of $55 million in the sales tax on groceries, $113 million in corporate taxes for manufacturing companies and $102 million in the Hall tax on investment income.

Tennessee's sales tax rate is 7%, while local governments can charge up to 2.75% more.

While Republican speakers of the state House and Senate are making positive statements about Haslam's plan, neither Rep. Beth Harwell of Nashville nor Sen. Randy McNally of Oak Ridge are going so far as to endorse the proposal. Harwell, who has not ruled out a gubernatorial bid to succeed Haslam next year, says in a statement that she is "grateful" that the governor has found a way to cut taxes while also calling attention to the state's infrastructure needs. McNally says the governor's plan "attacks the funding issue in a responsible way." Both say they are looking forward to a robust debate in both chambers.

Economic and Community Development Commissioner Randy Boyd says the proposal will help Tennessee land more manufacturing investments. Boyd says Tennessee last year lost a $500 million investment with 1,000 jobs at the Memphis Regional Megasite because of Tennessee's tax structure. Boyd did not name the company, but the project fits the description of Chinese tire maker Sentury's announced investment in LaGrange, Georgia, in September. And Boyd says Chattanooga area-based McKee Foods, maker of Little Debbie snacks, chose to expand in Virginia because "they can't afford to grow in Tennessee because of our taxes."

The leader of the Tennessee chapter of Americans for Prosperity is speaking out against the plan. Andrew Ogles, the group's state director, likened it to "theft" for the governor to propose a tax hike while the state is running budget surpluses topping $1 billion. Ogles says he plans to propose his own plan to spend $2 billion on transportation needs over the next decade without raising any taxes.

Haslam is rejecting calls to tap into the state's surplus funds to pay for his transportation program, arguing that doing so would dedicate taxes paid only by Tennesseans to roads that also are used by out-of-state cars and trucks.

More about the proposal

This story has been updated.

Matt Markgraf joined the WKMS team as a student in January 2007. He's served in a variety of roles over the years: as News Director March 2016-September 2019 and previously as the New Media & Promotions Coordinator beginning in 2011. Prior to that, he was a graduate and undergraduate assistant. He is currently the host of the international music show Imported on Sunday nights at 10 p.m.
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