The state Senate recently voted to ensure that Tennesseans will not face an income tax in the future. The Senate is seeking to clarify that the state constitution outright prohibits an income tax. There is a solid chance the House of Representatives will do the same, beginning the process of putting the issue before voters in the November 2014 election.
While it is the position of the Tennessee Center for Policy Research that a state income tax is currently prohibited, recent attempts to revive the income tax debate make it necessary to confirm this by amending the constitution’s language.
The Tennessee Supreme Court has ruled that a tax cannot be levied on Tennesseans’ income from labor. However, while compelling precedent, nothing prevents the state’s highest court from doing an about-face if confronted with the issue again, nor does the ruling ensure that politicians will heed this directive.
Despite the Supreme Court’s position, former Gov. Don Sundquist sought to impose an income tax in 2002. Since that failed attempt, some lawmakers have consistently filed legislation seeking again to impose an income tax on Tennesseans.
Further, a 1999 state attorney general’s opinion argued that if
properly worded, an income tax could be enacted by the legislature. The uncertainty of future Supreme Court decisions, ongoing legislative efforts and this opinion confirm the need to settle this issue once and for all.
An amendment clarifying that an income tax is indeed unconstitutional would finally render the persistent efforts by some to strip Tennesseans of their hard-earned income dead in the water.
There is something inherently un-American about taxing hard work and production. The adage goes that if you want less of something, tax it. American ingenuity and entrepreneurship have made us the most prosperous nation on Earth. Stifling economic growth by deterring people from making money is foolish public policy, and statistics appear to support this argument.
Tennessee is one of only nine states that do not tax income derived from labor. According to Texans for Fiscal Responsibility, every single day 20,000 taxpayers flee states with income taxes to settle in non-income tax states like Tennessee.
This taxation migration was made even more obvious by the 2010 U.S. Census results. In seven of the nine states that do not impose an income tax, population growth outpaced the national average. It appears that Americans are voting with their feet and settling in states where taxes are low and income taxes in particular are shunned.
Tennesseans — and Americans who are leaving income tax states in droves — have good reason to oppose this destructive tax. State income taxes lead to out-of-control government spending, hampering economic growth. Since 1967, states that tax income have seen a 42 percent increase in government spending and a 64 percent decline in personal income.
While Tennessee is facing its fair share of budgetary problems during the current economic downturn, our state’s residents fare much better than those of many states, especially those that rely on an income tax as their main source of revenue. Though slight, there has been a recent uptick in state revenues, signaling that a sales tax offers more stability than an income tax.
In late 2009, my organization partnered with the Show-Me Institute, a similar think tank in Missouri, to compare our two states. Over the past 50 years, Tennessee has outpaced Missouri in population growth, gross domestic product, personal income growth and employment, actually moving ahead of Missouri in three of these four categories.
A possible explanation for this trend? Unlike Tennessee, Missouri relies heavily on a state income tax. While there are certainly other contributing factors, as the study concludes, “Tennessee’s growing population and economy reflect the conventional wisdom that a friendly tax environment attracts both residents and businesses.”
For Tennessee to remain at the forefront of job creation and economic growth, state leaders must resist any attempt to impose a state income tax on Tennesseans. The best way to protect our hard-earned money will be to amend the Constitution, expressly stating that an income tax is forever banned in our state. This will make our current residents, as well as those who move here as a result, proud to call Tennessee home.
Justin Owen is president of the Nashville-based Tennessee Center for Policy Research, a free-market think tank. Its website is www.tennesseepolicy.org. Owen can be reached at firstname.lastname@example.org.