The Tax Cut and Job Creation Act:
The tax cut effects of this bill will leave more money in the pockets of hardworking citizens who are struggling to make ends meet and still provide the necessities for their families. The money saved can be spent on necessities deferred during the recession and will recirculate in the economy, resultin in job retention and creation because of the increased demand for goods and services. The tax increase on upper income taxpayers would have a negligible effect on spending as increased income for these brackets is typically put into savings rather than spent.
The additional revenue will allow us to avoid layoffs of state employees and cuts inn funding to critical government functions, further ameliorating the effects of recession and assisting Tennessee's economic recovery.
The bill will accomplish this by eliminating the 5.5% state sales tax on grocery food, leaving the local option (a maximum of 2.75% rate) unaffected. The bill will reduce the sales tax rate on other items from 7% to 5%. The Hall Income Tax will be eliminated and the unearned income currently subject to the Hall tax will be subject to a new, broad-based income tax with generous exemptions ($20,000 to $40,000 depending on filing status) and a 3% rate on the first $30,000 exceeding the exemptions and 6% on amounts over that. Overall, state and local taxes would be reduced from 11.7% to 9.7% for those earning less than $17,000, reduced from 9/3% t0 8% for those earning $29,000 to $47,000, and only those earning more that $75,000 would see a modest increase (negligible at the bottom end of the range and increasing to 2.5% at the top income levels) -- significantly reducing, but not altogether eliminating the inequalities in our tax structure. For example, a family of four earning the median 2009 income in Tennessee of $62, 197 would pay $515 in income and save $780 in sales taxes for a net savings of $264. The bill will benefit businesses by removing the real estate base from the Franchise tax and cutting the remaining rate in half.
With all these cuts, according to the Institute on Taxation and Economic Policy, the bill will still produce about $400 million in additional revenue for the state because it allow those who have the ability to pay and who have benefited from the prosperity that our system of government supports, to contribute more to their own well-being.