Truly an income tax free state

Governor Haslem has signed into law a bill that phases out the Hall income tax here in Tennessee. This will result in making Tennessee a truly income tax free state. But not everyone is happy. The class warfare element in politics is indignant that the wealthy aren’t going to be paying as much in taxes as they were before.

The governor’s office did not issue a comment on his action. But the Institute on Taxation and Economic Policy, which analyzes tax policy from a progressive standpoint, says repealing the Hall income tax will make Tennessee’s tax system more regressive than it already is because it will benefit the wealthiest taxpayers the most while the majority of Tennesseans will see no benefit.

ITEP says when the tax is eliminated, the tax cut would average more than $5,000 per year for the top 1 percent of Tennesseans in terms of income and less than $50 for the majority of Hall taxpayers.

I’ve made the case here before, although it has been some time, that these arguments at the state level are self-defeating. State and local taxes make up only a small portion of the overall taxes most of us pay. However, some of us only pay sales taxes and federal payroll taxes because the income tax rates are rigged so that the bottom 50% of income earners pay almost no federal income taxes, leaving them with only Social Security, Medicare, and sales taxes (and maybe a few other pittance taxes here and there). The rest of us carry the load not only for ourselves, but also the bottom 50%. So when tax cuts are made that benefit the highest earners, good for them. They deserve to have their load lightened.

If you are a member of society, you ought to have to pay something. Ideally, we’d have only a consumption-based system of taxation, where the more you spend, the more you pay. But that’s not something we’ll ever see. We won’t ever get rid of the income tax. Given this set of conditions, the fairest way to apply the income tax would be a small, flat percentage with no deductions. Let’s say it’s 10%. If you make $100,000, you’d pay $10,000. If you make $20,000, you’d pay $2,000. But that’s not something we’ll ever see, either. We’re stuck with a system that rewards sloth and punishes achievement, so in the rare event that the high earners catch a break from government, I applaud it.

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