Grover Norquist’s Americans for Tax Reform, along with the Tax Foundation and Koch brothers-backed Americans for Prosperity all tried to convince Tennessee lawmakers that the state’s wealthiest investors need a tax cut. Fortunately for Tennesseans, their elected officials rejected that idea this week.
At issue was the state’s “Hall Tax,” a 6 percent levy on stock dividends, certain capital gains, and interest. Tennessee does not tax wages, business income, pensions, Social Security, or virtually any other type of income imaginable. But for anti-tax groups, even the state’s narrow income tax on investors was too much to stomach.
The Tax Foundation put out an alert claiming Tennessee could improve in its (highly questionable) tax climate ranking by repealing the tax, while Grover Norquist traveled to Tennessee to urge repeal and Americans for Prosperity ran a series of radio ads doing the same.
The state’s comptroller got in on the action as well, bizarrely suggesting that the Hall Tax is bad policy because it is not primarily paid by large families or low-income people lacking health insurance.
But ultimately, sensible concerns that repeal would require damaging cuts in state and local public services eventually won out, and the bill’s sponsor dropped his plan.
This is good news for people concerned with the fairness and adequacy of state tax systems. As our colleagues at the Institute on Taxation and Economic Policy (ITEP) explained in a report picked up by The Tennessean, these cuts in public investments would have come with no corresponding tax benefit for the vast majority of households:
“Nearly two-thirds (63 percent) of the tax cuts would flow to the wealthiest 5 percent of Tennessee taxpayers, while another quarter (23 percent) would actually end up in the federal government’s coffers. Moreover, if localities respond to Hall Tax repeal by raising property taxes, some Tennesseans could actually face higher tax bills under this proposal.”
Tennesseans can breathe a sigh of relief that this top-heavy tax repeal plan didn’t make it into law this year. But you can bet that Grover et al. will try again soon as they attempt to set in motion a national trend away from progressive income taxes.