Tennessee’s governor bragged Tuesday on national television about the relative economic merits of living in a state where the electorate has historically resisted government attempts to impose income and payroll taxes on the citizenry.
The absence of state and local levies on personal incomes and business workforces has made Tennessee an attractive destination for industry, entrepreneurs and investors, Gov. Haslam suggested.
Speaking with CNBC’s Rick Santelli — the self-described “spark” that started the Tea Party movement in 2008 — Haslam joked that he’s in fact all for other states sticking with their punitive taxes on productivity, so that the Volunteer State can continue to offer a land of promise for those with the courage to flee for the greener pastures of Tennessee.
“It’s a competitive advantage. I hope they keep a very high cost structure and a high tax structure in place,” Haslam said.
Tennessee is one of nine states without an income tax.
Here’s a transcript of the interview:
Rick Santelli: Listen, I was surprised. Your state has never had a state income tax, although you do and are required to pay taxes on… interest income and dividends. So, can you please explain how that’s worked for the state and how it came to be that they were one of the states that just never decided to put it on the books.
Gov. Bill Haslam: I’ll chalk it up to the wisdom of some of our forefathers and mothers who realize that people have a choice where they live. And so you can live in a high-tax state, a California or Illinois, or you could live in a Tennessee where your personal income is not going to be taxed. We think it’s a competitive advantage. We actually have seen our growth be up this year considerably in a fairly, obviously tough economic time. Again, because people choose where they want to base their business, where they want to base their family, and they’re going to choose where it’s economically advantageous to them.
Santelli: But governor, come on. You must hear the critics. If you’re collecting state income tax, you’re not collecting a big pile of money that Illinois and California, New York are enamored with. How can your state run so efficiently? How do you make up that revenue?
Haslam: Right. So I’d ask, how’s that working out for them? Look at the states with the biggest deficits, and they’re the states with the costliest structure and the highest tax burden, and people are choosing where they’re going to live. Obviously, you all have been tuned into the whole, “the private sector is doing fine” remark. Maybe what we should question there is that the public sector is not doing well. In Tennessee our revenues are up year over year about 7 percent, that’s solid in this economy. We’re not laying off teachers. We’re not doing all those things because we haven’t let our cost structure get out of place. The places that are hurting, whether it be municipalities or states, are those states that have let their wages get high, mostly their pension costs get out of balance. That’s what’s driving the issue and not a fundamental issue that we’re cutting back on public-sector jobs.
Santelli: So if I’m understanding you right, your argument for the other states that are either considering and maybe for the states that should, is that without state income tax, you’re bringing in a population of potential entrepreneurs, potential investors, and it’s their activities and what it creates that generates more than you’re losing. Is that about right?
Haslam: Right. But I’m actually arguing, I hope the other states don’t do that. Like I said, it’s a competitive advantage. I hope they keep a very high cost structure and a high tax structure in place. But seriously, I’ll give you a couple examples. Volkswagen spent well over $1 billion in Tennessee building a manufacturing plant. One of the things that made them decide to be here was no income tax. I talk to entrepreneurs all the time, whether they’re sole proprietors or sub S corps. who have moved here because they just did the math. They were living in a higher tax state, and they said, “I can move to Tennessee. Here’s what it will save me every year.” Eventually, people who have capital are going to decide to deploy that capital where it’s going to get the best return. They don’t know boundaries. They’re going to go where they’re going to get the best return for their capital. We think Tennessee is one of those states.