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Legislature Gearing Up for Tax Reform Debate

Tennessee Republicans are flush with even more power in the General Assembly after the 2014 general election, and members of the expanded supermajorities in both dens of the statehouse are sure that one thing’s for certain: there’s no time like the present to talk about tax cuts.

There’s some disagreement, though, about which ones to go after first.

The two biggest targets are the Hall tax on investment earnings and Tennessee’s highest-in-the-country sales tax.

While many of the Volunteer State’s conservative Republicans favor doing away with the Hall tax, some of the party’s legislative leadership have instead made populist arguments in favor chipping away at the state’s sales tax. Over the past several years since losing majority-party status, that’s been a priority as well for Democrats, who charge the tax hits Tennessee’s poor the hardest. And as pitiful as their numbers are in the Legislature, Democrats could play a role in helping shape the discussion, particularly in the House.

While some Republicans have in the past balked at discussing cuts to the state’s general sales tax — or the tax on food — due to fears that its reduction would be a potential step toward enacting a state income tax, Senate Majority Leader Mark Norris said he hopes a recently passed constitutional ban on taxing Tennesseans’ income would change the discussion.

“Every time since I’ve been here we’ve tried to have a discussion about the state’s revenue and expenses, people say ‘Oh, it’s Trojan Horse for the income tax,'” the Collierville Republican told reporters last week. However, the overwhelming passage of Amendment 3 on Nov. 4, a change in the Tennessee Constitution that expressly prohibits the enactment of income taxes at the state or local level, “should silence those critics,” said Norris.

In the wake of two-thirds of Tennessee voters approving the amendment, Republican state Sen. Brian Kelsey, R-Germantown, filed legislation earlier this month aimed at, over the next three years, entirely phasing out the Hall Income tax — a six percent tax on income received from investments over $1250 a year for individuals making more than $33,000 a year.

In response, Norris and state Rep.Gerald McCormick — the majority leaders in both legislative chambers, who routinely carry legislation for Republican Gov. Bill Haslam — filed a proposal to reduce the state sales tax from 7 percent to 6.75 percent.

Getting rid of the Hall Tax would cut about $260 million from the annual budget. Likewise, McCormick told the Times Free Press, the proposed sales tax cut would reduce annual state revenue by about the same.

Norris referred to his proposal as one of “the bookends” of the greater tax reform discussion.

“The bill was filed, so I filed a bill. Do you want to cut $260 million in revenue for these people, or $260 million revenue for all people? It sort of frames the issue,” Norris said last week.

But while two of the state’s top fiscal conservative groups generally support reducing the tax burden of all Tennesseans’, they’re standing firm on their particular support for specifically doing away with the the Hall tax first — and they say that ought to be lawmakers’ first priority.

Tennessee’s chapter of Americans for Prosperity is “committed to assisting in the repeal of the Hall Income Tax,” said the group’s spokeswoman, Tori Venable. “Repealing this regressive tax will help our state as a whole, not just those who will benefit from the tax cut. The assurance of the Hall Income Tax repeal will help our state recruit more businesses, increasing job growth and economic output,” she wrote in an email to TNReport.

Lindsay Boyd, policy director for the Beacon Center of Tennessee, a 10-year-old Nashville-based free-market think tank, told TNReport via email that, first and foremost, the Hall Tax has to go. It “deters Tennessee families from settling in our state and small business entrepreneurs from investing in our economy,” Boyd said. She added that chipping away at the sales tax is a good idea, but it’s not going to show immediate results and definitely shouldn’t detract from the Hall tax discussion.

“A minuscule cut to the sales tax, as proposed by Rep. McCormick and Sen. Norris, may be a discussion we should resume once we free Tennesseans from the worry of having their hard earned dollars punitively and heftily taxed by the Hall tax on investment income- remembering that 40 percent of those who pay the Hall income tax earn less than $50,000 per year,” Boyd said.

Last session’s House GOP Caucus chairman, Franklin Rep. Glen Casada, told TNReport he favors prioritizing Hall tax elimination. Eliminating it as quickly as possible is an “excellent idea,” he said, because it would attract senior citizens to the state.

“It’s a wise, prudent financial move,” said Casada,who added that it’s unfair to ding people who’ve “played by the rules” and have saved money for retirement — and are not relying on government assistance.

Casada said he favors reducing taxes in general — but wants to begin with getting rid of the Hall tax, “and then start cutting sales tax on food.”

For an alternative perspective — or another tax-cutting idea to add to the mix — look no further than the House majority leader.

McCormick told TNReport this week that he thinks franchise and excise taxes should be looked at too. “I just think we need to look at all of them at the same time, and then decide if we can afford to cut taxes who we want to cut them for,” he said.

McCormick added that he was concerned cutting the Hall tax would “disproportionately” benefit higher income Tennesseans. The Legislature should “look at something that might also help those that are on the bottom rungs of the income levels.”

Haslam has suggested any legislators interested in cutting their constituents taxes should also be looking for cuts to make in state expenses. “I believe in cutting taxes. We’ve cut taxes since we’ve been here. We also believe in balancing the budget. And I think it’s important when you’re talking making any changes to revenue in the state, what are the commensurate changes you’re going to make in the expense structure as well?” Haslam said earlier this month.

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Stock Earnings-Tax Reduction Not Likely to Make Cut in Haslam’s Budget

Gov. Bill Haslam expects to release a list of edits to his budget plan Monday, but is staying quiet about how he wants to spend an unexpected influx of taxpayer dollars collected by the state.

The governor did say he doubts there will be room in his $31 million budget for Lt. Gov. Ron Ramsey’s proposed cut in the “Hall tax” on income from interest and dividends.

“Cutting the Hall tax will probably not be a part of our amendment,” Haslam told reporters Friday at LP Field in Nashville after encouraging youth exercise.

Reducing the Hall tax is one of hundreds of millions of dollars worth of requests his office has received in recent weeks as state revenues grew beyond expectations, Haslam told reporters earlier this week, saying he’d like to plug the excess money into basic service programs that faced cuts or would be funded by one-time money.

“We’re working on the amendment to the budget, and we have very few dollars and we have about $600 million worth of requests,” Haslam said Thursday after speaking with the Tennessee Board of Regents in Nashville.

“We’re trying to go back where we can and address some things we didn’t, couldn’t fit in the budget the first time,” he said.

The Hall tax is a favored tax cut by the lieutenant governor, a Republican from Blountville. Ramsey is backing two proposals reducing the tax on income from interests on bonds, notes and dividends from stock for people over 65 years old — who are now exempt from the tax if they claim less than $26,200 in income as individuals or $37,000 as a couple.

One plan, SB2535, would raise the senior exemption level to keep pace with the rate of inflation, which would mean the state losing out on $1 million a year. The other, SB2536, would up the exemption by $1,000, in turn lowering state revenue collections by an estimated $88 million a year.

Tax collections on everything from buying alcohol, clothing and cars to taxes paid by corporations are up from this time last year, giving the governor $251 million more for the government to spend or give back to taxpayers than originally predicted.

In announcing his first draft of the budget, Haslam said stronger-than-anticipated revenue helped balance out $160 million in one-time federal money leaving the state budget.

But tax revenue has continued to grow beyond expectations.

“As revenues increase, some steps are being taken to reduce taxes, in other words, return some money to the people,” said Mark Emkes, Commissioner of the Department of Finance and Administration.

“Money grows, the government grows, the budget grows. But the idea being that rather than just spend that money… it’s best to give that money back to the citizens of Tennessee,” he told TNReport.

The governor now is behind two tax cuts: reducing the tax on food from 5.5 percent to 5.3 percent, and phasing out the tax on inheritances worth more than $1 million. He also said he was weighing House Republicans’ idea of eliminating the tax on gifts.

Collectively, those reductions would mean $145 million in tax cuts over four years, said House Finance Committee Chairman Charles Sargent, R-Franklin.

“I think every year we need to start looking at reducing taxes. As revenues grow, I think we can reduce taxes by an amount of money so we don’t just keep growing the size of government,” said Sargent.

But that doesn’t mean there aren’t a couple things he’d like to see Haslam add back into his budget, he said, such as about $3 million for family resource centers and $2.4 million for peer support centers.

The governor expects to hand off his latest budget recommendations to the General Assembly Monday, April 2. Emkes plans on presenting those details to legislative budget committees Tuesday.

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Tax Cut Proposals Aplenty

Expect a tax cut, Tennessee’s high-ranking lawmakers are telling the public. In fact, expect as many as four.

Capitol Hill leaders are all but promising that Tennesseans should expect to pay less taxes on everything from their groceries to inherited multimillion-dollar estates.

“The important thing is we are sticking to the basic philosophy of our party, which is when additional revenue comes into the state, we look for ways to return it to the taxpayers instead of spending it,” said House Speaker Harwell, R-Nashville.

In past years under Gov. Phil Bredesen, a Democrat, lawmakers had considered raising taxes, such as by removing the local sales tax cap on high-priced items like boats and furs. With the GOP taking control of both chambers and the governor’s office last year, the Legislature reversed course and cut taxes by giving seniors a tax break on income from investments.

“It’s absolutely the right thing to do,” said Ben Cunningham, spokesman for Tennessee Tax Revolt, a fiscally conservative public advocacy group, and a persistent critic of heavy taxpayer burdens.

“During the good times, which is what it looks like we’re entering into now, we’re reducing taxes and expanding our economy and expanding our tax base in the future. And that’s the way to go,” he said.

In recovering from the recession that began in 2008, state revenues are now up 4.8 percent compared to a year ago, giving state officials the flexibility to decide how — or if — they’ll spend that unexpected taxpayer money. But Dick Williams of the left-leaning Tennesseans for Fair Taxation says the state should avoid rushing to reduce taxes without finding a way to offset the revenue, calling this year’s tax reform “low-hanging fruit for winning elections.”

“The whole concept of just lower taxes as low as you can ignores the fact we all rely on … roads and schools and services government provides,” said Williams, TFT chairman and an advocate for reducing the food tax in exchange for a broad-based income tax. “We just think it’s bad policy and shouldn’t be used as just a popular re-election or election tool.”

The proposed cuts enjoy varying levels of support from the two political camps and would touch all sorts of Tennesseans. Plans range from wiping away the tax on gifts like hand-me-down family cars or multimillion-dollar inheritances, reducing costs at the grocery store and giving seniors a break on taxes from earnings on stocks and bonds.

Tennessee Democrats say they’re generally in favor of cutting taxes, too, but would rather spread any tax breaks out to a larger audience by reducing the sales tax on food — even if the savings would appear small.

“As far as having an effect on people, it doesn’t have near the effect that a reduction in the sales tax on food would have, for instance,” said leading House Democrat Craig Fitzhugh, of Ripley.

Here are the four major tax cuts lawmakers are considering this year and a breakdown of how much taxpayers are currently dishing out to pay them:

“Inheritance Tax” SB3762/HB3760

This tax kicks in only when someone inherits wealth or a property worth more than $1 million. Any dollar over the $1 million threshold is taxed at progressive rates from 5.5 percent to 9.5 percent. Gov. Bill Haslam wants to gradually raise the exemption to $1.25 million beginning next year.

For example, coming into a property worth $1.04 million costs $2,200 in taxes. However, being left a property worth $5 million would cost $368,400 to inherit. Under Haslam’s plan, the $1.04 million property could be passed down tax-free next year, and the $5 million property would cost $344,650 in taxes.

Haslam and Republican lawmakers want to phase out this so-called “death tax” over the next four years, saying it hampers farm and business owners and forces some to relocate so their heirs can avoid paying the tax when they die. Democrats agree with deleting the tax in principle but say they’d rather see the state take a bigger bite out of the tax on food.

Inheritance Tax Stats:

  • In fiscal year 2011, people paid $97,875,967 in inheritance taxes.
  • In 2010, people paid: $75,887,698 in inheritance taxes.
  • That’s a 28.9% increase in the last year.
  • Reducing the tax next year will mean $14.1 million less for state government.

“Grocery Tax” SB3763/HB3761

While most other products in Tennessee carry a 7 percent state tax, non-restaurant food is taxed at 5.5 percent. The tax doesn’t apply to all groceries, like diapers or garbage bags, but only food products like meat, vegetables and bread.

Haslam wants to reduce the tax to 5.3 percent in hopes to drop it to 5 percent in three years. However, there is so far no legislation that would require the state to follow the governor’s timeline.

A family of four buying $884 a month in groceries would save $21.22 in the first year under Haslam’s proposal. Dropping the tax to 5 percent would mean that family would save $53.04 annually, and eliminating it completely would translate to $583.44 in savings a year.

Both parties are on board with this tax cut, although Democrats and some Republicans want to take a larger slice out of the tax. Some want to drop it to 5 percent next year and others want to get rid of it all together.

Food Tax Stats:

  • In fiscal year 2011, people paid $489,939,858 in taxes on non-restaurant food.
  • In 2010, people paid $476,875,314 in taxes on non-restaurant food.
  • That’s a 2.7 percent increase in the last year.
  • Reducing the tax next year to 5.3 percent would mean $17.1 million less for state government to spend.

“Gift Tax,” SB2777/HB2840

This is the newest tax cut on the block this session. This bill would repeal the state’s current 5.5 percent to 16 percent tax on gifts to individuals, like cars, boats and real estate.

The tax rate and an exemption depend on the value of the gift and who it’s given to.

For example, a father can give his daughter his old Volkswagon, and she won’t have to pay the gift tax on it unless it’s worth more than $13,000. If it is worth, say $20,000, she’d have to pay $385 in taxes. If the father gave a car to his friend’s unrelated goddaughter and it’s worth more than $3,000, she’d get stuck paying the tax. That same $20,000 car would cost her $1,105 in taxes.

Harwell added this repeal to the list of priority tax cuts earlier this month, saying it would round out the types of taxes the state should no longer impose. The governor said lawmakers have approached him about doing away with this tax, and he’s working to see whether the state can afford it.

“Gift Tax” Stats:

  • In fiscal year 2011, people paid $15,472,738 in gift taxes.
  • In 2010, people paid $11,448,443 in gift taxes.
  • That’s a 35.2 percent increase in the last year.
  • Reducing the tax next year would mean $14.9 million less for state government.

“Hall Tax,” SB2535/B3423 and SB2536/HB2972

Named after its creator Sen. Frank Hall, who pushed the bill in the late 1920s, this tax focuses on income from interest on bonds and notes and dividends from stock. That interest is taxed at 6 percent, but lower income people over 65 are exempt.

For 2011 income and the tax filing coming up next month, individuals over 65 with total income less than $16,200 and couples making less than $27,000 last year are exempt.

For 2012, the senior citizen exemptions are higher, at $26,200 for individuals or $37,000 for couples.

Lt. Gov. Ron Ramsey was behind the expanded exemption and says he wants to go further this year, although Harwell and Haslam aren’t so sure. The governor said he’s still trying to figure out what the state can afford to do.

Ramsey wants to either up the exemption by $1,000 for both single filers and couples or require that the exemption keep pace with the rate of inflation.

“Hall Tax” Stats:

  • In fiscal year 2011, people paid $189,518,032 in Hall taxes.
  • In 2010, people paid 172,459,343 in Hall taxes.
  • That’s a 9.9 percent increase in the last year.
  • Increasing the exemption by $1,000 under SB2536 would mean $88 million less in state government.
  • Increasing the exemption to keep up with inflation under SB2536 would mean $1 million less in state government.
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Committee Discussions on Cutting ‘Hall Tax’ Coming Up Soon: Ramsey

Tennessee legislative leaders have, for the most part, put off talk of tax cuts until after the budget picture is clearer late in the session. But Lt. Gov. Ron Ramsey said he anticipates senators will start discussing his plan to reduce the Hall tax as early as next week.

Gov. Bill Haslam, who has so far said there’s no room in this year’s budget for that tax cut, stopped short of saying what he’d do if the Legislature approves it.

“It’s a question of what all can you do at the same time,” Haslam told reporters Wednesday when asked if he’d support Ramsey’s reduction of the Hall tax. “It’s obviously a question of balancing revenues, expenses. There are lots of things that people would like to add to the budget now. We have to get that balance right.”

Under the so-called Hall tax, the state currently taxes at 6 percent income from interest on bonds and notes and dividends from stock, although people over 65 with total income less than $16,200 and couples with less than $27,000 are exempt. Last year, lawmakers upped the exemption to $26,200 for individuals and $37,000 for couples, which will kick in for the 2012 tax year.

Two bills seeking to reduce the Hall tax have advanced to the Senate Finance committees, although their House counterparts have been put off until after the Legislature OKs the budget.

“We want to make sure that when you put money aside, when you pull out of your 401(k)s, it won’t be taxed,” Ramsey said after a milking contest in honor of Ag Day on the Hill Tuesday. “I don’t think we’ll ever get it completely done away with, but for those over 65, I think it’s very important.”

SB2535 would require the the state to adjust the Hall tax’s exemption annually to reflect increases in the consumer price index. SB2536 would increase the exemption to $36,000 for single filers and $47,000 for joint filers. Both exemptions apply to filers over 65.

Both bills are sponsored by Senate Government Operations Chairman Ken Yager, R-Harriman.

Ramsey has run into opposition about his plan for the Hall tax. Both Haslam and House Speaker Beth Harwell have said they’d like to see the Hall tax lower, but not this year.

But Ramsey is still pushing for it. The bills have yet to be added to the committee’s calendar, but the lieutenant governor said he expects them to be heard next week.

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State Gift-Tax Cut Weighed Against Other Requests

Gov. Bill Haslam says he’s considering the idea of cutting or eliminating the tax on large gifts, which has “been brought up by several legislators.” But the governor said he won’t know until April whether the state can afford it.

Knocking down the gift tax is the newest addition to a handful of tax cuts Republican leaders say they want to see this year.

“We’ve heard a lot of folks saying they would like that addressed,” Haslam told reporters after speaking to the Nashville  Area Chamber of Commerce in downtown Nashville Tuesday.

“We have a whole lot of requests for budget amendments. Way, way more than we can ever fund, and so we’re trying to wade through that and prioritize amongst a lot of different areas of interest,” he said.

People now pay a 5.5 percent to 16 percent state tax on pricey gifts such as a car, land or wealth.

The tax applies for gifts worth $13,000 within the family or gifts of more than $3,000 to others.

Last budget year, the state collected more than $296,000 in gift taxes, a 9 percent increase over the year before, according to the Department of Revenue.

Eliminating the gift tax is as important as the governor’s preferred tax cuts on food and inheritances, said House Speaker Beth Harwell.

Senate Speaker Ron Ramsey says he’ll back a reduction in the gift tax, but he’s also pushing for a reduction in the tax on income from stocks and dividends although Harwell and Haslam say that tax is not among their priorities.

“We actually don’t have anything on the Hall this year,” Haslam said. “We did last year. There’s nothing on the Hall this year.”

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Another Round of ‘Hall Tax’ Reductions Unlikely This Year, says House Speaker Harwell

The Tennessee Legislature won’t pass much in the way of tax cuts beyond what Gov. Bill Haslam is requesting for 2012, says House Speaker Beth Harwell.

That means a reduction in the Hall tax on income from stocks and dividends — a tax Lt. Gov. Ron Ramsey wants to see slashed this session — isn’t likely in the cards, she said.

“I do not think so this year,” Harwell said Thursday when asked if the Hall tax will make it to a floor vote. “We did, of course, take a bite out of that last year. But I think our focus now is going to be on the reduction of the death tax, elimination of the gift tax and a reduction of the food tax.”

Lawmakers have yet to take up a bundle of bills reducing taxes on Tennesseans as lawmakers push those measures toward the end of the spring legislative session, likely after lawmakers have a clearer picture of the state’s budget.

Although reducing the Hall tax on interest and dividends isn’t in the Haslam-Harwell playbook this year, it’s still a priority to Ramsey, according to the lieutenant governor’s spokesman, Adam Kleinheider.

The tax currently charges 6 percent on income from interest on bonds and notes and dividends from stock, although people over 65 with total income less than $16,200 or a couple with less than $27,000 are exempt. Last year, lawmakers upped the exemption to $26,200 for individuals and $37,000 for couples, which will kick in for the 2012 tax year.

One of Haslam’s prime objectives this year is to reduce the food tax from 5.5 percent to 5.3 percent. The move is part of a larger plan to drop the tax on non-restaurant food to 5 percent over three years.

He also wants to increase the exemption on the inheritances tax, otherwise known as the “death tax.” His plan is to raise the exemption from $1 million to $1.25 million to lower the tax burden on family business owners in hopes of eventually raising the exemption to $5 million.

Lawmakers from both parties have signaled they’d like to go further than Haslam by reducing the food tax and inheritance tax even more or completely eliminating them.

Another tax-cut idea that’s been suggested is to do away with the “Gift Tax,” which charges 5.5 percent to 16 percent tax on transfers of wealth or property amounting to more than $13,000 to family members and $3,000 to non-family. Harwell said the GOP plan is to eliminate that tax.

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Tax Cuts on Food, Inheritances Pushed by Haslam

Gov. Bill Haslam Tuesday afternoon introduced his 2012 legislative agenda, announcing that he will push for two tax cuts during this year’s Tennessee General Assembly session, which also began Tuesday.

The tax cuts come by way of the governor’s proposals to raise the state inheritance tax exemption from $1 million to $1.25 million and to lower the state’s portion of the sales tax on food from 5.5 percent to 5.3 percent.

A family of four spending $884 a month on groceries would save about $21 a year under the Haslam tax cut.

The proposals were something of a surprise move from the governor, who has said as recently as last month that such cuts would be unlikely this year due to the state’s tight financial situation.

The proposed tax cuts are just the beginning for the governor, who said the cuts were the first step toward his goals of lowering the food tax to 5 percent and raising the inheritance tax exemption to $5 million, to match the federal exemption mark, by the end of his first term.

Estimates are that the two-tenths of a percent decrease in the food tax will lower the state’s revenues by $18 million. For the change in the estate tax, that number is $14 million.

“I just think it’s important, if we’re to lower taxes for Tennesseans, that’s the only way to really touch every Tennessean in a significant way,” Haslam said of his decision to push for a food tax cut.

Lt. Gov. Ron Ramsey last month told reporters that he “wasn’t a big proponent” of cutting the food tax and that it probably wasn’t wise, anyway, given that sales taxes are the main revenue source for state and local governments. While Speaker Beth Harwell stood by the governor’s side at his press conference Tuesday and voiced her support for Haslam’s agenda, Ramsey did not attend but released a brief statement.

“I am excited to work with Gov. Haslam to move Tennessee forward toward more jobs, less spending and smaller government,” he said. “The governor has chosen his priorities well. This is a solid agenda that our unified Republican majority can proudly stand behind.”

Ramsey conceded that his priorities differ from the governor’s in some areas, but said he’d support Haslam’s agenda.

“I’ve always been in favor of reducing the estate tax, and so that’s one of his priorities too,” the Blountville Republican told TNReport. “So, I think if you look at the package from top to bottom, it’s something I agree with and can’t wait to help him pass it.

“[The food tax cut] has not been a priority of mine, I will agree with that, because that’s something I feel like is a stable base of revenue that we have. But reducing it from 5.5 to 5 over three years – that’s fine. It’s not like we’re trying to do away with the sales tax on food,” he said.

Haslam’s agenda did not include a push for a cut in the Hall income tax on investments, which has been a goal for some Republicans, including Ramsey.

“That fight’s not over yet either, OK,” Ramsey said. “That’s just not one of [Haslam’s] priorities.”

As for raising the state inheritance tax exemption, Haslam said he believes the move will create more revenue for the state in the long term by keeping people in the state.

“There are a whole lot of people who used to live in Tennessee who don’t anymore because it’s cheaper to die in Florida,” he said. “And I can tell you a whole lot of people who spend less than half of their year in Tennessee to avoid that estate tax specifically.”

Speaking to reporters after Haslam’s remarks, Harwell expressed her full support for the governor’s agenda and was particularly pleased with the proposed change to the estate tax. She said she was glad to see the state raising the exemption to a reasonable level and called Tennessee’s current exemption “way out of line.”

Among the other items in the legislative package were proposals to give individual school districts more autonomy with regards to salary schedules and average class size and changes to the state’s hiring and employment practices. The governor also proposed legislation that would restructure 22 state boards and commissions, which he called the “first step in an ongoing comprehensive review process.”

Andrea Zelinski contributed to this report.

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Ramsey: Food-Tax Cut Off the Table

Lt. Gov. Ron Ramsey is slamming the door on the possibility of cutting the grocery tax, saying most people wouldn’t notice if it was lower, anyway.

“I’ll bet you that if you poll the citizenry, there isn’t 5 percent that can tell you that when you walk into a grocery store and you buy some pork and beans, your tax is 5.5 percent from the state, and if you reach right beside it and get a box of toilet paper, it’s 7 percent,” Ramsey told reporters Thursday.

“I think it’s more psychological than it is anything else,” he said.

Sales taxes, including on the purchase of food, are the bread and butter that fuels state and local government spending, Ramsey said. Combined with local sales taxes, food is taxed as much as 8.25 percent while other goods are taxed at a rate up to 9.75 percent.

Lowering the food tax might end up starving government of necessary revenue nourishment, Ramsey said.

“We’re never going to do away with (the food tax) completely. So I don’t think that lowering it really does help that much, and I think we can concentrate more on the tax that we can actually eliminate,” he continued.

Asked by a reporter if he used to be a supporter of cutting the sales tax on food, Ramsey said, “Actually, I wasn’t a big proponent, to be perfectly honest.” However, as recently as July, Ramsey said, “I’d love to eliminate the food tax and I hope and pray that Tennessee will soon be in a position to do just that.”

At present, Ramsey is setting his sights on cutting the 6 percent Hall tax on income from interest and dividends while House Speaker Beth Harwell is looking to cut the inheritance tax, which kicks in on estates worth more than $1 million.

House Democratic Caucus Leader Mike Turner announced Friday he wants to repeal the Hall tax altogether.

“The Republican majority has said they want to cut taxes and I think they should support this legislation and also produce a balanced budget,” said Turner. “I am calling upon all my colleagues in the House Republican Caucus to sign on to this bill.”

Gov. Bill Haslam has said he’d like to lower all three of those taxes, but says next year is probably not the time.

Democrats are pushing for a reduction in the food tax, but Republicans have pushed back, calling the proposal irresponsible political posturing.

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Press Releases

TFT: Replace Hall Tax with ‘Broad Based Tax on Income with Generous Exemptions and Modestly Graduated Rates’

Press Release from Tennesseans for Fair Taxation, Jan. 28, 2011:

A Bill has been introduced in the legislature to reduce the “Hall” Income Tax over time and eliminate it by 2015 (SB0033 by Burks/HB0046 by Sexton). Another bill (HB0122 by Sargent/SB0108 by Johnson) has been introduced to increase the amount of income exempted from the “Hall” tax to reflect inflation up to a maximum exemption of $2,500 for individuals or $5,000 for persons filing jointly.

In the Hall Tax, named after its 1929 sponsor, Sen. Hall, Tennessee actually has an income tax. The rate of 6% is only on dividends from stocks and interest on bonds. Currently, the first $1,250 per individual or $2,500 per joint return is exempt. Since 2000, those exemptions were increased to $16,200 and $27,000 respectively for those over 65. Certain blind persons, quadriplegics, prisoners of war and several technical situations are completely exempt from the tax, as detailed in Title 67, Chapter 2 of Tennessee law (see http://www.tennessee.gov/revenue/taxguides/index.htm).

This tax is collected by the state, but more than one-third of it is returned to the city or the county in which the taxpayer lives.

Legislators and the public rightfully believe that this tax is especially hard on retirees and others on fixed income. The current tax is counterproductive to encouraging saving and in attracting additional retirees to the State. However, with the current budget shortfalls in state and local governments, we cannot afford to lose in the range of $200 million in revenue per year without at least replacing it with a more appropriate revenue source.

Tennesseans for Fair Taxation (TFT) proposes to replace the Hall tax and our excessive reliance on a high sales tax, also hard on all persons on fixed or modest income, with a broad based tax system as follows:

  • lower sales tax,
  • no sales tax on food and
  • a broad based tax on income with generous exemptions and modestly graduated rates.

Such a system could be designed so most Tennesseans would pay less in state taxes while raising sufficient revenue to prevent most of the cuts in services and jobs anticipated in coming budget years.

The TFT proposal is reason enough NOT to pass the proposed constitutional amendment