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Income Tax Ban Redo — Again

A proposal to constitutionally prohibit state and local governments in Tennessee from enacting personal-earnings taxes has already passed the Senate twice. But it keeps getting hung up in the House. Sponsors are starting over from scratch, but are optimistic it’ll still pass both chambers yet this year.

A constitutional amendment to definitively ban a state income tax has already won approval by one full chamber and was on the move in the other. But the measure’s key House sponsor says he’s going to scrap it and start all over.

Rep. Glen Casada, R-College Grove, the former GOP caucus chairman in the House, said he is recasting the proposal and starting it from scratch because members of the House Finance Subcommittee attached an amendment to the resolution that would also cap state and local sales tax rates.

“It was too open,” Casada said of the resolution, which passed in the Senate 28-5 on March 9. Casada worried the measure’s added language both freezing the state sales tax and banning an income tax is too much for voters to weigh on one ballot question.

However, Casada says a new resolution, HJR231, has been “written it so tight it will hold no amendments.”

HJR231 reflects the main thrust of the original anti-income tax resolution and would add language to the Tennessee Constitution at the end of Section 28 concerning the state’s taxing authority:

Notwithstanding the authority to tax privileges or any other authority set forth in this Constitution, the Legislature shall not levy, authorize or otherwise permit any state or local tax upon payroll or earned personal income or any state or local tax measured by payroll or earned personal income; however, nothing contained herein shall be construed as prohibiting any tax in effect on January 1, 2011, or adjustment of the rate of such tax.

The new measure also deletes language from the first bill that would have permitted the state to forgo the customary printing of proposed constitutional amendment language in the states’ larger newspapers and instead publish just on the web. That issue, too, is up for debate on Capitol Hill this legislative season.

Now that Casada is introducing the new language, he and Kelsey will have to run it by a series of committees in their respective chambers for a second time. The proposal will go before a House committee hearing late next week, he said.

House Democrats last month managed to tack on language to the measure that would have banned sales tax increases and permanently require the state to stay within it’s fiscal means.

Sen. Brian Kelsey, who spearheaded the bill in the Senate, said he wasn’t happy with the old version after Democrats, joined by two Republicans on the subcommittee, amended it, but still believes there is enough time left in this year’s session to pass the measure again.

“I am open to any amendments that are not poison pill amendments,” said Kelsey. “And, as I understood, that sales tax amendment, that was a poison pill amendment that was meant to kill the no state income tax constitutional amendment.”

The Senate last year passed Kelsey’s income tax ban as well, but the measure died behind the budget in the House because of the fiscal note for publishing it in newspapers.

Kelsey and Casada both say they like Democrats’ idea to ban any future sales tax increases, but say it would make the issue just muddy enough to prevent it from passing both full chambers in two years when it needs a two-thirds vote by lawmakers to make it on the ballot.

Plus the amendment would essentially ask voters to ban both an income tax and an increase in the sales tax — issues Republicans say should be weighed on separately.

House Democratic Leader Craig Fitzhugh said Democrats aren’t at all upset that the sales-tax capping amendment won’t stay on the proposed income tax prohibition.

“We were sort of encouraged to see that the former leader over there (former GOP caucus leader, Casada) said it was a good amendment,” he said.

“We can’t pass anything – they have to have the votes. But if we have convinced it’s the right thing to do, I think that would be good for all.”

Old Hickory Rep. Mike Turner says he doesn’t see his Democratic caucus fighting too hard on the straight-forward income tax ban, although he contends the income tax is already prohibited in the constitution.

“I personally think it’s already banned and it’s already been banned,” said Turner, who added that there’s no real pressure in Tennessee to impose an income tax, anyway.

That’s not a position held by everyone in his caucus, however. House Speaker Emeritus Jimmy Naifeh, fought to institute an income tax in the late 1990s and early 2000s. Last year several Democrats signed on to a “Tax Cut and Job Creation Act” that, while not a constitutional amendment, sought to enact a statewide income tax. The bill was reintroduced again this year, then withdrawn.

Although Turner, the House Democratic Caucus Chairman, says an income tax is already banned, traditional supporters of his party disagree. Tennesseans for Fair Taxation, which counts among its coalition of supporters the Tennessee State Employees Association and the Tennessee Education Association, believe not only is an income tax legal, but it is necessary.

An income tax is strongly supported — and the constitutional ban on one is vehemently opposed — by TFT, which “has for many years advocated cutting our sales tax in half and eliminating the food tax entirely.” The group regularly calls for trading a chunk of Tennessee’s highest-in-the-nation combined state-and-local sales tax rates for “an income tax with generous exemptions.”

“The Tennessee Constitution is mute or ambiguous on whether the state has the power to levy a tax based on income other than dividends and interest,” Bill Howell, the Middle Tennessee organizer for TFT, told a Senate committee hearing Kelsey’s income tax ban amendment earlier this year. “How we fund our government is at the core of our life together, and the justice of who pays for our government is a primary concern for all of us.”

Asked at one point during the hearing why he didn’t support giving the people the chance to vote for themselves on the issue of whether the state constitution ought to allow an income tax, Howell said “we have a representative form of government or a reason.”

“You have the power to foresee that there could be an emergency,” he told lawmakers. “If we leave this to the people and they do decide to forgo a future possibility (of enacting an income tax), they may live to regret it.”

House Speaker Beth Harwell expects the new constitutional rewrite will have few problems working its way through the legislative process during the final weeks of the legislative session, although she personally believes the current language bans any future income tax.

“Clearly, it’s what the public wants. My feeling is it’s already unconstitutional but just to be absolutely sure, we’re going to place this amendment before the people,” she told TNReport.

Because the proposal would change the Tennessee Constitution, it still has a long way to go before it can become law. The measure needs a majority vote in both chambers by the current General Assembly — which meets through 2012 — and a two-thirds vote in the next assembly before it can be put to voters on the 2014 ballot.

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