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Senate Gives First Endorsement of Income Tax Prohibition

A work-earnings tax is extremely unpopular right now, but it isn’t an altogether decided constitutional issue, says resolution sponsor Brian Kelsey: So best to get started now killing it once and for all.

Lawmakers on Monday took the initial legislative step of ensuring that Tennessee citizens never have to worry that the General Assembly or a local government will tax their employment earnings.

But final passage of the the constitutional amendment, SJR763, sponsored by Germantown Republican Senator Brian Kelsey, which seeks to ban income and payroll taxes at state-level government and below, is still years away.

And one lawmaker, Sen. Jim Kyle, D-Memphis, predicted that because of a flaw in the way Monday’s vote on Kelsey’s bill was “published” for public notice beforehand, it’ll be struck down by the state Supreme Court before it ever even gets to a vote of the people.

“If you want less of something, tax it. If you want more of something, don’t tax it — to paraphrase Ronald Reagan,” said Sen. Kelsey on the Senate floor prior to the 25-7 Senate vote. “We all want more income in Tennessee, so let’s make sure we never tax it.”

Kelsey went on to argue that even though the general consensus right now in the Legislature and among the voters is that while an income tax is politically unpalatable, and probably unconstitutional, it isn’t an altogether dead or decided issue.

“There are many of us who believe that an income tax is already unconstitutional,” said Kelsey. He added that the Tennessee Supreme Court has three times ruled that the power to tax personal income isn’t authorized in the state’s guiding document, which currently declares simply that “(t)he Legislature shall have power to levy a tax upon incomes derived from stocks and bonds that are not taxed ad valorem.”

Kelsey added, however, that “unfortunately there are others in the state who think that an income tax is constitutional.”

“That’s why we need to clarify this resolution — to clarify this issue once and for all,” he said. “Just going back in recent memory, to 1999, we had our own attorney general who opined that the General Assembly could pass an income tax. Right after that, in November 1999, a Republican governor, Don Sundquist, proposed an income tax for Tennessee. A few years later, in 2002, the issue actually reached the floor of the House for a vote. Forty-five members of the House — Republicans and Democrats — voted for an income tax that day. Only five short of a majority…believed that the issue was unclear enough that they felt, in good conscience, that they could vote for an income tax. That’s a problem.”

Of the seven senators who voted against the constitutional amendment, only two rose to explain their opposition following Kelsey’s speech.

Calling taxation in general an “unpleasant subject,” and the income tax in particular a “wretched system,” Sen. Douglas Henry, D-Nashville, nevertheless indicated his unwillingness to restrict future Tennessee elected officials from instituting whatever form of tax they believe appropriate.

Noting that a “proper payroll tax is not a tax on employee, it’s a tax on employer,” Henry suggested it might be shortsighted to prevent some “ingenious city or county that has some idea for raising some money.”

“I don’t see why you want to rule it out on the front end,” he said.

Later, regarding the state’s power to impose an income tax specifically, Henry added, “I can’t read the tea leaves and tell what’s going to happen 20 and 30 and 40 years from now. I don’t know what kind of a box we might find ourselves in.”

“I don’t believe that I can look far enough in the future and say the day may never come when this unpleasant necessity may be foisted on us in order to continue operation of state,” Henry said.

Senate Minority Leader Kyle, until recently a candidate for governor, also expressed concern with the payroll tax provisions of Kelsey’s constitutional amendment, and also questioned whether the amendment had been properly publicized prior to Monday’s vote.

“It is my personal belief that this resolution is defective, in that it only gives notice over the internet,” said Kyle. “I believe that is not sufficient notice. Over half the citizens of this state do not have access to the internet. We had a broadband task force on that very issue, and the limited ability of people to find the internet.”

Kyle predicted that the Supreme Court would rule that SJR763 hadn’t been properly and formerly “published,” and “consequently there will not be a (referendum) in 2014 on the issue of the income tax.”

Others voting against SJR763 included Democratic Sens. Beverly Marrero, Ophelia Ford and Reginal Tate of Memphis, as well as Thelma Harper and Joe Haynes of Nashville, also Democrats. Tate is the Senate sponsor of a bill currently before lawmakers, “Tax Cut and Job Creation Act,” that would, among other changes to the Tennessee tax code, enact an income tax. A hearing on the House version of that bill is scheduled for Wednesday in the House Government Operations Committee.

With passage on the Senate floor, SJR763 now moves to the Tennessee House of Representatives. If it passes there, it must garner a two-thirds majority of Senate and House members voting in support of it during the 2011-2012 legislative session, and then be approved by voters in the 2014 general election.

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