Tennessee taxes and jobs

Some Tennessee lawmakers are raising questions about whether Tennessee's tax on the estates of the deceased -- also known as the "death tax" -- may be driving some people out of Tennessee, thus harming economic growth.

State Rep. Joe Carr, R-Lascassas, said he knows half a dozen people who have moved out of Tennessee to avoid paying the "death tax," The Daily News Journal in Murfreesboro reported. "Men and women who have the ability to create jobs are leaving the state," he said.

Other lawmakers have raised similar concerns about both Tennessee's "death tax" and the "Hall income tax." The Hall tax is not a "general" income tax, but is levied only on dividends and interest earned from stocks and bonds.

Gov. Bill Haslam has said the two taxes harm economic development in Tennessee because they "chase capital away from the state."

However, the governor has understandably expressed concern, in the current weak economy, about finding a way to replace the revenue that would be lost if both the "death tax" and Hall income tax were abolished.

At a minimum, though, it would be sensible to determine whether some people who could be investing and creating jobs in Tennessee are, in fact, leaving Tennessee and going to states without such objectionable taxes. That certainly would not be unheard of.

In the five years before New Jersey enacted massive tax increases -- including an increase in a tax specifically targeting the wealthy -- people moving into the state brought with them $98 billion in wealth. But once the higher taxes were imposed, in 2004, New Jersey lost more than $70 billion in wealth over the next four years! Many higher-income residents of New Jersey simply left the state to avoid paying the higher taxes.

We can see why: The wealthiest 1 percent of New Jersey residents were paying 40 percent of the income taxes in the state!

To make matters worse, a lot of those who fled the higher taxes were better educated, harming the state's work force and growth prospects.

You may or may not worry too much about "the rich." But it was certainly not good for New Jersey's economy when lots of its residents left the state to avoid excessive taxes -- and took with them tens of billions of dollars that might otherwise have been invested in New Jersey.

Could the same thing be happening in Tennessee?

So far, we seem to have mainly anecdotal evidence that some people are leaving Tennessee to seek "greener tax pastures." And we do understand concerns about the short-term loss of tax revenue if the "death tax" and Hall income tax were suddenly abolished.

Nevertheless, it would behoove Tennessee at least to study whether, because of those taxes, Tennessee is suffering a loss of economic development that might outweigh the loss of revenue from eliminating the objectionable taxes.

If Tennessee is losing taxpayers, we should give serious consideration to abandoning both the "death tax" and the Hall income tax.

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