NASHVILLE — Senior citizens could receive a tax break on their investments starting in 2013 under a plan being pulled together by Gov. Bill Haslam and state lawmakers.
More Tennesseans over 65 will be exempted from paying the so-called Hall tax on dividends and investments, Tennessee’s only tax on income, if a bill filed in the state legislature passes before the end of the session this year. Haslam has agreed to fund the legislation in the state budget, and the bill has the support of many lawmakers, including Lt. Gov. Ron Ramsey.
The measure would increase by $10,000 the amount of money couples and individuals over 65 can make each year and still not have to pay the Hall tax. The bill will cost the state about $1 million in revenue annually, but supporters say it will boost the economy and provide relief to retirees.
“I just think it’s good policy in Tennessee,” Haslam said. “If you’re retired and living on dividends, I’m not sure why you should be treated so much different from someone who’s living on a salary.”
Tennessee charges a levy of 6 percent on investment income, defined by state law as dividends from stocks and interest on bonds over $1,250 a year. The tax dates to 1929 and is named after the senator who sponsored the legislation that created the tax.
Corporations and individuals pay the tax, but senior citizens do not have to pay if their total income is less than $16,200 for an individual or $27,000 for a couple. More than 127,000 taxpayers pay the Hall income tax, a group that supporters say includes many retirees.
The tax will bring in an estimated $186 million this fiscal year.
Eight bills were filed this year to reduce or eliminate the Hall income tax. Most would have cost the state tens of millions of dollars in annual revenue, and because proceeds are split with local governments, cities and counties would have lost millions.
Only one of them, the cheapest, appears to have a significant chance of passing. That bill would increase the income limits to be exempt from the Hall tax by $10,000, to $26,200 for individuals over 65 and $37,000 for couples over that age. The higher limits would let about 4,725 more taxpayers qualify for the exemption, the state Department of Revenue says.
The increases would also update the limits to reflect the impact of inflation since they were last set, and they would allow more retirees draw Social Security without being taxed on their investments, supporters say.
“I don’t think seniors should be penalized for drawing Social Security,” said state Rep. Cameron Sexton, R-Crossville, one of the measure’s sponsors. “I don’t think that’s fair.”
Expected to pass
The bill, which would apply to tax returns filed in 2013 or later, would cost the state about $1 million annually. Local governments would lose about $650,000 a year.
But the legislation appears to have a strong chance of passing. Haslam’s latest budget proposal, released last week, sets aside $1 million to pay for the higher exemptions.
The bill also has the support of Ramsey, the top-ranking member of the state Senate, and of the main budget writers in the legislature.
“We’re probably going to move that bill forward,” said Rep. Charles Sargent, R-Franklin, the chairman of the House Finance Committee.