ATR Urges Tennessee Legislators to Repeal the Tax on Investment Income
Today, as Tennessee lawmakers gaveled in for the state legislature’s 2014 session, Grover Norquist, President of Americans for Tax Reform, sent a letter to Volunteer state representatives and senators, urging them to support SB 1427, legislation introduced by Senator Mark Green that would gradually reduce the Hall Tax, the state’s six percent tax on investment income. The text of the letter is as follows:
â€‹Dear Members of the Tennessee Senate,
I write today in strong support of SB 1427, legislation introduced by Senator Mark Green. This legislation is a pro-growth reform that would draw down one of the few remaining items impeding Tennessee from reaching its full economic potential: the 6% tax assessed on investment income, known as the Hall Tax. The Hall Tax represents a form of double taxation that lawmakers should do away with during the 2014 session for a host of reasons.
Repealing the Hall Tax would provide significant tax relief to over 400,000 Tennesseans who, according to IRS data, reported receiving dividends totaling $2.2 billion in investment income in 2011, the most recent year for which data is available. The majority of these taxpayers are senior citizens who are living on fixed income. In fact, SB 1427 would mainly provide tax relief to middle and lower income citizens. According to IRS data, 56% of Tennessee taxpayers who reported receiving dividends were households earning less than $75,000 a year. 40% of the households that would receive a tax cut under SB 1427 are households that earn less than $50,000 per year.
Eliminating the Hall Tax is a simple step that you can take to make Tennessee more economically competitive and do so at little cost to the state. Drawing down the Hall Tax would not result in a significant loss of revenue to the state. Once fully phased in, this near repeal of the Hall Tax would cost the state just $157 million annually. To put this into perspective, that amount represents just 1.3% of Tennessee’s $11.8 billion general fund, and 0.47% of the state’s $33 billion in total outlays, both comparable to a rounding error. This small loss of revenue is basically a rounding error that can easily be offset with very modest spending restraint or economic growth.
The positive benefits of being a no income tax state are well known. States with no income tax have seen far higher economic growth and job growth in the past decade than those states which still impose an income tax. While Tennessee considers itself to be a no income tax state, the Hall Tax forces an asterisk to be put next to her name. SB 1427 would gradually phase out nearly all of this tax over a four year period, providing meaningful relief for Tennessee taxpayers.
States are working tirelessly to out-compete one another for jobs and investment. Neighboring North Carolina just enacted a massive income tax cut and lawmakers in Raleigh plan to come back and fully phase out their income tax in the coming years. Georgia lawmakers, too, have indicated an interest in phasing out their income tax and may very well take up tax reform that moves in that direction this year. Clearly, this is no time for Tennessee lawmakers to rest on their laurels.
Over the past several years, Tennesseans have seen 21 new or higher federal taxes imposed on them from Washington. In light of this, it is imperative now more than ever that the legislators in Nashville work to counteract these job killing policies. As such, I urge you to support SB 1427, and enact legislation that will cut taxes for a large number of your constituents and promote economic growth. Americans for Tax Reform will be educating your constituents as to how their representatives in the Senate vote on this important matter.
To view a PDF copy of the letter, click here.