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Summary of the 1-3-5 Plan of 1999
The 1-3-5 Plan was the plan that was introduced during the November 1999 Special Session and passed the Senate Finance committee.
Click here for an overview of the 1-3-5 Plan. Click here for the ITEP report about the 1-3-5 Plan.
Impact of the 1-3-5 Proposal on Different Income Groups
Nearly 80% either save or pay the same under the 1-3-5 Proposal
| Income Group |
Bottom
20%
|
Second
20%
|
Middle
20%
|
Fourth
20%
|
Top 20%
|
| Next 15% |
Next 4% |
Top 1% |
| Average Income |
$8,100 |
$17,500 |
$28,600 |
$45,300 |
$76,300 |
$158,000 |
$737,000 |
| Income Tax |
0.0% |
0.0% |
+0.2% |
+0.4% |
+1.0% |
+2.3 |
+3.5% |
| Food Tax Savings |
-0.8% |
-0.6% |
-0.5% |
-0.4% |
-0.3% |
-0.2% |
-0.0% |
| Tax Reform Effect |
-0.8% |
-0.6% |
-0.4% |
0.0% |
+0.7% |
+2.1% |
+3.4% |
| Federal Offset |
0.0% |
0.0% |
0.0% |
0.0% |
-0.1% |
-0.5% |
-1.3% |
| Net Tax Effect |
-0.8% |
-0.6% |
-0.4% |
0.0% |
+0.5% |
+1.6% |
+2.1% |
Click Here for Full ITEP Report (in PDF Format)
How the 1-3-5 Graduated Income Tax Works
For a single person with no dependents:
- Pay 0% on the first $15,000 of income.
- Pay 1% on the next $15,000 of income.
- Pay 3% on the next $15,000 of income.
- Pay 5% on all income over $45,000.
Single adult with children / dependents:
Calculated the same as above, except the base deduction begins at $22,000.
As well, additional deductions of $2,500 per dependent are applied (note at right). |
Married couples with or without children / dependents:
Calculated the same as single adults, except that all the numbers are doubled.
- Pay 0% on the first $30,000 of income.
- Pay 1% on the next $30,000 of income.
- Pay 3% on the next $30,000 of income.
- Pay 5% on all income over $90,000.
Additional Exemptions:
- $2,500 - Additional deductions per dependent.
- $2,500 - Additional deduction for seniors.
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Examples of How the Graduated Income Tax Works
Following is an outline of the latest 1-3-5 Plan passed out of the Sen. Finance Committee during the November 1999 Special Session. It is presented below in an attempt to clarify the way a graduated income tax works.
EXAMPLES DO NOT INCLUDE THE LARGE NUMBER OF TENNESSEANS (about half) WHO DO NOT MAKE ENOUGH TO EVEN PAY THE PROPOSED INCOME TAX.
Food tax savings are noted at the in estimates above.
Single adult making $50,000 a year.
| · First |
$15,000 |
 x |
0% = |
$0 (single adult ded.) |
| · Next |
$15,000 |
x |
1% = |
$150 |
| · Next |
$15,000 |
x |
3% = |
$450 |
| · Next |
$5,000 |
x |
5% = |
$250 |
$50,000
total income |
|
|
$850
total taxes |
The effective tax rate is 1.7% of total income (850/50,000),
NOT 5% as
some news reports would lead one to believe.
Single adult making $27,000 a year.
| · First |
$15,000 |
 x |
0% = |
$0 (single adult deduction) |
| · Next |
$12,000 |
 x |
1% = |
$120 |
$27,000
total income |
|
|
$120
total taxes |
The effective tax rate is 0.4% of total income (120/27,000).
Single adult with two children making $40,000 a year.
| · First |
$22,000 |
 x |
0% = |
$0 (head of household) |
| · Next |
$5,000 |
 x |
0% = |
$0 ($2,500 per dependent) |
| · Next |
$13,000 |
 x |
1% = |
$130 |
$40,000
total income |
|
|
$130
total taxes |
The effective tax rate is 0.3% of total income (130/40,000).
Married couple with two children making $37,000 a year.
| · First |
$30,000 |
 x |
0% = |
$0 (married couple deduction) |
| · Next |
$5,000 |
 x |
0% = |
$0 ($2,500 per child ded.) |
| · Next |
$2,000 |
 x |
1% = |
$20 |
$37,000
total income |
|
|
$20
total taxes |
The effective tax rate is 0.1% of total income (20/37,000).
Married couple with two children making $55,000 a year.
| · First |
$30,000 |
 x |
0% = |
$0 (married couple ded.) |
| · Next |
$5,000 |
 x |
0% = |
$0 ($2,500 per child ded.) |
| · Next |
$20,000 |
 x |
1% = |
$200 |
$55,000 total
income |
|
|
$200
total taxes |
The effective tax rate is 0.4% of total income (200/55,000).
Married couple, no children making $150,000 a year.
| · First |
$30,000 |
 x |
0% = |
$0 (married couple deduction) |
| · Next |
$30,000 |
 x |
1% = |
$300 |
| · Next |
$30,000 |
 x |
3% = |
$900 |
| · Next |
$60,000 |
 x |
5% = |
$3,000 |
$150,000
total income |
|
|
$4,200
total taxes |
The effective tax rate is 2.8% of total income (4,200/150,000).
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