Tennessee legislators will consider a bill this week to make the state a true no income tax state by repealing the state’s 6% tax on dividend and other investment income. Committee votes will occur as early as this evening. Below is the letter Americans for Tax Reform sent to House Finance, Ways and Means Committee Members today.
Dear Members of the Tennessee House Finance, Ways and Means Committee,
I write today to urge your support for HB 1367; legislation introduced by Chairman Charles Sargent that would make Tennessee a true no income tax state by phasing out Tennessee’s 6% tax on dividend income, referred to as the Hall Tax.
The Hall Tax is a form of double taxation that is preventing Tennessee from achieving its full economic potential. HB 1367 would phase out the Hall Tax in a responsible manner, and includes provisions that address concerns about revenues. HB 1367 would reduce the Hall Tax by 1% per year for six years until the tax is eliminated. For those concerned about revenues, the yearly reduction would not take place in years where state revenue targets are not met.
As it stands, the Hall Tax represents a relatively small portion of Tennessee’s annual revenue, amounting to only 0.09% of state and local revenue in Tennessee. This small reduction in revenue, which would be gradually phased in, should also be compared to the growth of Tennessee’s budget in recent decades.
From 1999 to 2009, Tennessee’s spending ballooned by more than 20% in excess of the rate of inflation and population growth. From 1989 to 2009, spending grew by 36% in excess. Phasing out the Hall Tax during a minimum of six years would provide ample time for state and local governments to prepare.
According to IRS data, over 400,000 Tennesseans received dividends in 2011, the most recent year for which data is available. Though a majority of these individuals earn less than $75,000 a year, many are still subject to the 6% tax on their investment income. Furthermore, a majority of these taxpayers are senior citizens. These hardworking men and women deserve to keep as much of the fruits of their labor as they can, especially considering they have already paid taxes on the money they invested.
The non-partisan Tax Foundation released analysis in February showing how elimination of the Hall Tax would boost Tennessee’s economic competitiveness. Tennessee currently has the 15th best business tax climate in the nation. However, if lawmakers repeal the state’s tax on investment income, Tennessee would have the 11th best business tax climate in the nation.
No income tax states have outperformed other states and the nation economically. At relatively little cost, The Volunteer State can ensure its continued competitiveness by phasing out the egregious form of double taxation that is the Hall Tax.
Tennesseans have seen over 20 federal tax increases imposed on them by Washington in just the last three years. As such, it’s imperative that lawmakers in Nashville provide relief to taxpayers at the state level, which you can do by supporting HB 1367. Americans for Tax Reform will be educating your constituents as to how their representatives in the state legislature vote on this important matter.
To view a PDF copy of the letter, click here.