published Monday, March 10th, 2014

Smith: Money matters: End state's Hall Tax

Last week, a few mayors and Tennessee state legislators, a group of think tank leaders and a contingent of press met in a room at Tennessee's Legislative Plaza to mark the "beginning of the end of Tennessee's income tax."

The Beacon Center of Tennessee, a nonprofit, nonpartisan policy research organization, kicked off the press conference with President Justin Owen noting the purpose of the gathering: to launch a legislative effort to end the state's Hall Tax, a tax on personal investment income.

The Hall Tax was initiated in 1929 and ruled by Tennessee's Supreme Court to be a "privilege tax" to avoid conflict with our state's constitution that prohibits an income tax. Yet, the Hall Tax, levied on the income an individual receives from the interest from savings and dividends resulting from mutual fund and stock investments, is truly a personal income tax.

Doubt that? Go to the state's online portal to file your payment electronically, and you're greeted with the banner from the Department of Revenue, "Individual Income Tax."

Joining the Beacon Center were the legislative sponsors who have written the bill to gradually end the Hall Tax over a 6-to-7-year window of time. State Sen. Mark Green, R-Clarksville, and Rep. Charles Sargent, R-Brentwood, discussed the bill that would begin upon passage to reduce the current rate of 6 percent taxation on taxable interest and dividend income over $1,250 per person ($2,500 for married couples filing jointly) for those under age 65.

The proposal reduces this rate by 1 percent annually with an eventual elimination. The legislation addresses the mechanics of shared revenue to county and other municipalities by increasing the percentage received locally as the rate is reduced.

Why the big deal? The population that is disproportionately harmed by the Hall Tax is the seniors -- retired citizens who live off of retirement plans and savings they made through discipline and planning.

But the retired are not the only ones who pay this tax.

The Tax Foundation, a nonpartisan research group, has published data showing 56 pecent of Tennesseans paying the Hall Tax earn less than $75,000 yearly, and 40 percent of those taxed on this personal income make less than $50,000 yearly.

No, this is not a tax proposal to benefit the rich or some corporate conspiracy. This common-sense legislation encourages savings and removes the incentive for retirees to leave the state.

Gov. Bill Haslam has already increased exemptions for our senior citizens to exclude the first $10,000 in income of those over 65 years of age with a pledge to further reduce the levy that represents 0.9 percent of the total collections of taxes in Tennessee.

I know, lots of numbers, lots of talk, but what does it mean to the average person?

As you invest in your retirement plans and develop your nest egg for the future, you'll keep a little more of the money you've earned, and the state government will be forced to make budget priority decisions just like we do at our kitchen tables.

With this one piece of legislation, if signed into law, our state will move from a ranking of 15th, according to the Tax Foundation, for a favorable tax climate for investment to 11th.

With the passage of this bill by Rep. Sargent and Sen. Mark Green, the disclaimer and asterisk will be removed in the record books, with Tennessee becoming one of only eight states with the authentic designation of having no personal income tax.

Asterisk-free ... it's the Tennessee way.

Robin Smith served as chairwoman of the Tennessee Republican Party, 2007 to 2009. She is a partner at the SmithWaterhouse Strategies business development and strategic planning firm and serves on Tennessee's Economic Council on Women.

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hotdiggity said...

Robin, I searched your post and I have not seen where you would make up the shortfall for doing away with this tax. Oh, let me guess, the typical conservative shuffle of cutting taxes for the upper class will result in cutting services for everyone else.

Perhaps you could provide some statistics of the number of people running out of the state because of this tax. Also, these same people have benefited for years by not paying state income taxes.

This is the same scam and alligator tears that was perpetuated to do away with the inheritance tax which benefited the rich in the state.

But hey, we can make up the shortfall by passing on the responsibility further down the economic ladder.

March 10, 2014 at 6:29 a.m.
LibDem said...

This is an awkward situation for Tennessee politicians. After years of pretending there is no income tax, they now want to claim to cut these taxes. Many people I know have never heard of or paid the tax. (I'm a newbie and researched taxes when I moved into the state.) This year you can file the tax electronically, another awkwardness for politicians who're pretending the State is a 19th century haven of backwoodsiness.

March 11, 2014 at 4:19 p.m.
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