When I was speaking to a corporate recruiter recently, the Nashville-based businessman noted that Tennessee continues to be among states with the “fastest growing” economies because of a favorable business climate “fostered by good policy.”
A lunch presentation had featured references to the Bureau of Economic Analysis data published last year that showed ” the professional, scientific and technical services sector was the largest contributor to U.S. economic growth. However, the sector was the largest growth contributor in only seven states: California, Connecticut, Georgia, Utah, Massachusetts, New Jersey and Tennessee.” This is good news knowing the prospects of higher wages that are found within the “professional, scientific and technical” world of business.
Committed to growth, the Tennessee Department of Economic and Community Development website touts our state as having the following advantages: business climate, international commerce unbound by state lines, ideal centralized location and infrastructure, workforce and education, and quality of life.
Recently, local factors of education and crime which contribute to these “advantages” have generated troubling headlines. So the imperative of a reliably trained workforce and the answer to the oft-asked question, “How safe is it there?,” relating to a community’s crime, remain. Needless to say, Chattanooga’s room for improvement will be welcomed and necessary.
But, a critical pillar of Tennessee’s economic platform – our regulatory and taxing environment – has one aspect that seems to rankle. Established in 1929, the Hall Income Tax is assessed on interest and dividend incomes, translated as taxes on your savings and investments. At its inception, the law impacted those dreaded wealthy folks who constantly do things like hire people, invest in philanthropy and buy bigger houses, cars and boats that the supposed unwashed masses sell. (Yes, sarcasm is intended.)
However, today, average citizens have interest from savings and investments that may reach the annual triggers of $1,250 per person or $2,500 per couple that will be taxed at 6 percent to be collected by the state and divided with local governments.
You see, Tennessee’s “no-income-tax-state” status has always carried an asterisk. Despite the Volunteer State’s philosophical approach to collections to obtain its funding from transactions, specifically sales tax, rather than taxing or penalizing work, the Hall Income Tax falls outside the notation of “good policy.”
Where is it a good idea to penalize personal savings or investing through taxation? Over 40 percent of those who pay the Hall Income Tax make less than $75,000 a year. Improvements were made to the bill last year that only taxes seniors if their annual income exceeds $37,000 for an individual or a married couple making under $68,000 if they’re past 65 years of age. Yet, why tax the “income” of seniors, those who’ve carefully planned for their seasoned years and who disproportionately carry the load of this Tennessee tax?
But, back to the important fact that Ronald Reagan understood fully: “If you want more of something, subsidize it; if you want less of something, tax it.” Do we want fewer folks saving and investing for their future? Do we want to deter retirees from making Tennessee their home due to irresponsible policy?
The “revenue” generated from this Hall Income Tax is less than 1 percent of our state’s entire budget at about $300 million. The economic contribution to local governments each year reaches about 5 percent of the total intake from their residents.
Tennessee is, indeed, a growing state that is a desirable destination for travel and permanency of companies and residents due to so very many factors. So, let’s demand our government incentivize work, savings and investments by eliminating the Hall Tax.
Robin Smith, a former chairwoman of the Tennessee Republican Party, owns Rivers Edge Alliance.