While there is a strong inclination among Republican legislators to do something toward reducing or eliminating the state’s tax on investment income this year, there seems no consensus at all on what that something should be.
As an illustration of the indecision, a subcommittee of the Senate Finance Committee, charged with reviewing tax bills, last week recommended passage of seven different proposals involving the Hall Income Tax. They vary substantially, ranging from total repeal to giving modest reductions in tax liability to disabled veterans in one case and to senior citizens in another.
Besides approving seven conflicting proposals, the panel also pulled back to committee a proposal approved earlier by both the Revenue Subcommittee and the full Senate Finance Committee so that it could be amended. Senate Finance Committee Chairman Randy McNally, R-Oak Ridge, says that measure — SB47, sponsored by Sen. Mark Green, R-Clarksville — could become a vehicle for some sort of compromise with further tinkering.
As approved earlier, the bill basically calls for reductions in the Hall tax rate — now 6 percent — by a percentage point each year, but only in years when the state has a revenue surplus. A contemplated amendment would add to the bill provisions in another subcommittee-approved bill (SB2619) that would allow local governments to levy a Hall Income Tax themselves if the state tax is repealed.
Revenue from the Hall tax currently is split between state and local governments. Last year, the tax brought in $303 million in total revenue, with about $189 million flowing to the state’s general fund and the remaining $114 million distributed to local governments that are home to those paying the tax.
Gov. Bill Haslam, while declaring a general distaste for the Hall tax, has also opposed repeal without any replacement for the hole that would be created in state and local government budgets. Most repeal bills call for the state to reimburse local governments for their lost revenue. Haslam notes that would not only leave the state to bear the entire burden, but would effectively mean taxpayers in the poorest areas of the state — who pay sales taxes and property taxes but not the tax on investments — would be subsidizing those in the wealthiest areas of the state, where there is substantial investment income from residents subject to the Hall tax.
Other subcommittee-approved Hall tax bills include SB144, which reduces the tax rate from 6 percent to 5 percent for veterans with disabilities; SB1461, which decreases the rate for all to 5.5 percent; SB1551, which increases the income threshold for those aged 65 and older who must pay the tax from $37,000 to $50,000 for single filers and from $68,000 to $100,000 for joint filers; SB2, which abolishes the tax but requires state government to pay local governments for their lost income; and SB2539, a Haslam administration bill that gives “angel investors” a refund of Hall payments of up to $50,000 each.