Tennessee to Vote Whether Income Tax Unconstitutional

By Higgins, Sean | Examiner (Washington, D.C.), The, October 27, 2014 | Go to article overview

Tennessee to Vote Whether Income Tax Unconstitutional


Higgins, Sean, Examiner (Washington, D.C.), The


Tennessee is one of nine states that does not have an income tax.

Anti-tax advocates want to make sure it stays that way. Next week, Tennessee voters will be asked whether the state constitution should be amended to forever prohibit income and payroll taxes.

"Not having an income tax has already brought jobs to Tennessee, and voting 'yes' on [question] 3 will bring even more jobs," said state Sen. Brian Kelsey, a Republican who sponsored the legislation leading to the amendment.

That's the common argument made by income tax foes -- economic growth more than makes up for the money a state loses in revenue from not having an income tax.

But is that true?

The picture is mixed when comparing states with no income taxes to those with the highest marginal rates.

Some statistics, particularly on job growth, back up tax opponents. And people in those states pay fewer taxes in general. But by other measures, such as household income, states with the highest taxes do better.

Eight states in addition to Tennessee do not have an income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Washington and Wyoming.

Since 2000, those nine states posted stronger median employment growth than the nine states with the highest top marginal income tax rates (California, Hawaii, Iowa, Maine, New Jersey, New York, Oregon, Vermont and Wisconsin), averaging 11.5 percent job growth compared to the latter group's rate of 2.9 percent, according to the Census Bureau.

A low income tax encourages people and businesses to move to a state, said Jonathan Williams, director of the conservative American Legislative Exchange Council's Center for State Fiscal Reform.

"The way to increase tax revenue is not to increase the taxes but to increase the number of taxpayers," Williams said.

States with no income tax have a lower overall tax burden. Residents of high-rate states fork out $4,773 in taxes, over $1,300 more than residents in states without an income tax.

And states with no income tax also tend to be more business- friendly, as five of them have no corporate tax rate. Only Alaska and New Hampshire have corporate tax rates that are comparable to the ones in the high-rate states, running between 7 and 12 percent.

The no-tax states have higher rates of economic growth, too. Their economies grew by 3.3 percent on average since 2005, compared with 2 percent for the high-tax states, according to an August report by the U.S. Bureau of Economic Analysis. The averages are thrown off somewhat by sparsely populated Wyoming growing at 8.4 percent, but some high-population, no-tax states also enjoyed strong growth, such as Texas at 4.3 percent and Florida at 3.7 percent.

States with no income tax must get their revenue from somewhere, though. Sales taxes are one way: They average 4.5 percent, but residents of Tennessee and Nevada pay as much as 7 percent.

"It was 5 percent just a few years ago," said Dick Williams, chairman of Tennesseans for Fair Taxation. …

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