Tennessee Lawmakers Considering Step by Step Elimination of Hall Tax

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Posted by Sven Werner on Monday, April 6th, 2015, 4:30 PM PERMALINK

Tennessee legislators are considering legislation bill, Senate Bill 47,that would repeal the Hall Tax, the state’s six percent tax on investment income. The Tennessee Senate Finance Committee will hold a hearing on SB 47 this week. SB 47 would get rid of the Hall Tax, step by step, reducing it by 1 percent every year that state revenue growth exceeds three percent. The Hall Tax only makes up one percent of state and local tax revenue, meaning that, with economic growth, modest spending restraint, or a combination of the two, lawmakers can easily cope with the Hall Tax’s elimination.

Below is a copy of the letter ATR sent to Tennessee senators, urging them to make Tennessee a true no-income tax state by passing SB 47:

To: Members of the Tennessee Senate Finance Committee

 Re: SB 47

 On behalf of Americans for Tax Reform and our supporters across Tennessee, I urge you to use the 2015 session to pass legislation that protects Tennessee taxpayers and fosters economic growth. After being hit with over 20 federal tax increases in recent years, it is imperative that state lawmakers stand up for Tennessee taxpayers. The best thing lawmakers can do for Tennessee taxpayers and the state economy is pass Senate Bill 47, legislation that will repeal the Hall Tax, the state’s six percent tax on investment income. I urge you to support SB 47 when it comes before the Finance Committee.

The six percent Hall Tax on dividend an interest income is a form of double taxation that hurts seniors and discourages investment in Tennessee. A tax on investment income, such as the Hall Tax, is one of the most economically damaging forms of taxation. The Hall Tax is preventing Tennessee from realizing its full growth potential and should be done away with. SB 47 gets rid of the Hall Tax in a responsible and cautious manner, reducing the Hall Tax by a percentage point every year that state revenue growth exceeds three percent. The Hall Tax does far more damage than it’s worth, raising what amounts to less than one percent of state and local revenue. With economic growth, modest spending restraint, or a combination of the two, lawmakers can easily cope with the Hall Tax’s elimination.

Tax relief isn’t just good politics, it’s good policy. The non-partisan Tax Foundation released analysis 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.

Tax Foundation economist William McBride reviewed academic literature going back three decades and found "while there are a variety of methods and data sources, the results consistently point to significant negative effects of taxes on economic growth even after controlling for various other factors such as government spending, business cycle conditions and monetary policy."

 In McBride's survey of 26 studies dating to 1983, he found "all but three of those studies, and every study in the last 15 years, find a negative effect of taxes on growth." John Hood, chairman of the John Locke Foundation, analyzed 681 peer-reviewed academic journal articles going back to 1990 and found that keeping state and local tax and regulatory burdens as low as possible promotes economic growth. "Most studies find," Hood discovered, "that lower levels of taxes and spending, less-intrusive regulation correlate with stronger economic performance."

Tennessee has lower taxes than most states, but that doesn’t mean lawmakers should rest on their laurels, as other states in the region and across the country continue to propose and enact reforms that make their tax codes more competitive. As such, I urge you to use the 2015 session to make Tennessee a true no-income-tax state by beginning to phase out the Hall Tax. Americans for Tax Reform will continue to follow this issue closely throughout the session and will be educating your constituents as to how you vote on this important matter. If you have any questions, please contact Patrick Gleason, ATR’s director of state affairs, at (202) 785-0266 or pgleason@atr.org.

Onward,​

Grover G. Norquist

President, Americans for Tax Reform

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