Hall Income Tax hurts Tennessee, especially seniors
In an effort to raise awareness about Tennessee’s income tax secret, Beacon Director of Policy Lindsay Boyd pens an article that originally appeared in Saturday’s Tennessean.
As the 2014 legislative session of the Tennessee General Assembly gets into full swing, there are several issues that are dominating the headlines. Wine in grocery stores, opportunity scholarships for students, Medicaid expansion and a host of other subjects have become kitchen table conversations for Tennessee families. Amid these timely topics is a sleeper issue that many may be unaware of — but one that drives straight to the heart of Tennessee’s reputation, culture and values.
If you have not familiarized yourself with the Hall Income Tax, perhaps it’s time to ask yourself this important question: Are you secure in your plans for the future? If you believe that you’re taking all the proper precautions to sustain yourself or your family for the years ahead, the impact of Tennessee’s Hall Income Tax may be reason to reconsider.
The Hall Income Tax was instituted in 1929 and applies to interest and dividend income received by individuals who maintain their legal residence in Tennessee. The controversy over this tax may not get the same coverage as the ability to buy a bottle of wine with your groceries, but the impact of the Hall tax is much more substantial.
In the Beacon Center of Tennessee’s newly released report “Our State, Our Future,” the harmful effects of the tax are illuminated through the stories of Jon and Linda Freeman, a retired couple, and Nicholas Holland, a young Nashville entrepreneur.
Had Jon and Linda known about the tax before moving from Alabama, they may have looked elsewhere to retire. “I wish these harsh taxes had been more clear to us before we came here,” Jon Freeman says. Holland similarly asserts, “The Hall tax is not only an income tax, but an income tax of the worst kind: It punitively punishes a segment of our population, namely the elderly, who have taken risks with their hard-earned dollars and hope to see their risks pay off.”
Indeed, consequences of the Hall Income Tax loom large. Several studies suggest that a dividend becomes less valuable when more of it is taxed. Moreover, the tax encourages more people to sell stocks rather than begin to draw income from the investments, which impacts the financial planning of investors and has negative economic consequences for companies.
Yet, perhaps the most compelling argument against the tax is the destruction it causes to the lives of our senior citizens, who own a disproportionate percentage of dividend-paying stocks and are reduced to significantly smaller incomes as a result. “My father recently passed away, and my mother — who would be considered very middle class — received some financial assistance through my father’s insurance,” Holland says. “We have discussed placing those funds into stocks that would give her a fixed income necessary for her retirement.
However, the Hall tax makes this an unlikely option for us. Lawmakers should remember that seniors are among the most vulnerable of our population and the impact this tax has is not just limited to those individuals, but also to their families, who face the burden of assisting or providing for their loved ones,” he notes.
The Hall tax will be addressed by the General Assembly this spring, with several proposals already introduced that take varying approaches toward reducing or eliminating the tax altogether. It remains to be seen whether lawmakers will finally end this antiquated tax law from a bygone era.
Lindsay Boyd is the director of policy at the Beacon Center of Tennessee, and co-author of “Our State, Our Future.”