Talk Radio Thwarts Tennessee Income Tax

As key Democrats and Republicans huddled behind closed doors trying to break an impasse over a proposed new Tennessee income tax, 2,000 protesters rushed up the Capitol steps, screaming, “No means no!” and smashing a few windows.

It was a bona fide tax revolt, and it worked. But it was hardly spontaneous.

Instead, the tax-thwarting protest was the handiwork of two talk show hosts who took to the airwaves and put out an urgent S.O.S.

“They’re trying to raise our taxes! Get to the Capitol! Quick!” was what Phil Valentine and Steve Gill, the town’s leading conservative radio personalities, told their listeners.

Sure enough, lawmakers passed a budget without any new taxes, despite a deepening crisis fueled by an economic slowdown and a tax structure so flawed that politicians have raised rates 61 times in the last 30 years just to keep up with the demand for services.

The lesson isn’t that a state income tax is unpopular; it’s that Tennessee now has three political parties: There are Democrats. There are Republicans. And then there is talk radio. The protest this month was a coming of age for the state’s conservative shock jocks and the high point of a long, well-organized battle against the effort to bring an income tax to Tennessee, one of the nine states that doesn’t have one.

“These radio guys have shown they can rally the support,” said William Lyons, a University of Tennessee politics professor. “They’ve become actors on the stage.”

And the play continues. Next month, the tax issue is expected to return to the state Legislature. And so are the protesters.

“We’re the voice,” Gill said. “But the people are the volume.”

Tip Came From Inside

Gill and Valentine have forged some key alliances with other stations across the state and, more important, with conservative lawmakers. It was a Republican state senator who tipped them off July 12 about the back room negotiations.

“Income tax vote should be around 5,” wrote Marsha Blackburn in a frantic e-mail sent from the Senate floor to Valentine’s radio station. “TIME FOR TROOPS.”

Some senators are now talking about censuring Blackburn, a freshman from Nashville’s wealthiest suburb, for instigating the rowdy protest, which never got violent but damaged state property.

The two radio hosts say they’re sorry about the three windows that got smashed.

Steve Gill is a 44-year-old trade lawyer, a former White House fellow and an aspiring Republican politico who came within 900 votes of winning a congressional seat in 1994. He does the morning drive, 5 to 9, on Nashville’s WWTN SuperTalk.

Phil Valentine, 42, is a sometime actor, sometime singer and a guy who likes to dress up like Elvis and pass out doughnuts on the streets of Nashville. His afternoon talk show on WLAC is ranked No. 1 in the market.

The two use unorthodox methods--like steering protesters to lawmakers’ homes and telling listeners to mail their legislators used tea bags. (The Boston Tea Party, get it?) They see themselves as a conservative counterweight to a typically liberal media.

“At least we’re up front about our bias,” Valentine said.

They’re well schooled in tax policy, the hot issue right now in Tennessee.

One of the state’s problems is that it is so dependent on the sales tax, which targets goods, not services. As the state has shifted from manufacturing to service industries, such as health care and distribution (Federal Express is headquartered in Memphis), tax revenues have declined as a percentage of the economy.

Meanwhile, Tennessee is spending more money than ever, undertaking ambitious social programs like TennCare, a subsidized health care plan, and building more prisons and schools. That has pushed the state budget up 87% in the last 10 years, an increase far exceeding population growth and inflation.

Enter the downturn. As in most other places, business has been a little off in Tennessee the last six months, and unemployment has risen from 3.9% to 4.3%. The tax receipts the state was counting on never materialized.

For example, sales tax revenues have come up $230 million short of projections, a 5% shortfall.

“It may not sound like a lot,” said Gerald Adams, one of the governor’s budget advisors. “But it’s a big deal when you’re on the margin.”

Making Ends Meet

Economists say there’s a simple solution: a state income tax. Revenue generated by income tax tends to keep pace with the economy. Just look at the federal budget.

Most of the states without an income tax have other revenue generators that make up for it: oil in Texas and Alaska, tourism in Florida, slots in Nevada.

The most recent state to add an income tax was Connecticut in 1991, and it drew huge protests.

That’s what Tennessee lawmakers were trying to avoid last week when they met in secret at the Capitol one final time to work out a budget compromise. The leading proposal was a flat-rate income tax of 3.5%, followed by a nonbinding referendum on the issue in 2003 and more exemptions from the sales tax.

Democrats control both chambers of the Legislature, and many Democrats supported the proposal. The trick was co-opting a few more Republicans to get a majority, said Robert Rochelle, a Senate Democrat.

It’s not clear how close they were when the protest exploded. Rochelle said the talks were difficult, though lawmakers hadn’t given up yet.

But as the crowd began to surge up the steps from the grassy plaza in front of the Capitol to the doors of the Legislature, which they pounded, demanding to be let in, the mood inside changed.

“At that point, we couldn’t even hear each other,” Rochelle said. “It became a tone of ‘Let’s just pass this thing and go home.’ ”

In the end, the Senate voted, 20 to 11, for a budget without an income tax. The house then passed it, 71 to 25.

The $19.6-billion budget has no new taxes. To make ends meet, lawmakers used $560 million of state tobacco settlement money, including funds they haven’t received but expect to get next year. Several education programs were cut, and state college tuition will likely be raised 15% next year. Some commentators called it an “Armageddon budget.”

Gov. Don Sundquist, a second-term Republican who twice campaigned on a no-income-tax pledge but has since reversed his position, promises to veto the budget. He also issued a statement criticizing “some of the radio talk show hosts . . . who encouraged disruptive behavior.”

Valentine and Gill call him “Darth Sundquist.” “And I was touched he even mentioned us,” Valentine said.

Times researcher Edith Stanley contributed to this story.