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About the Governor's Proposal of 2000
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The Governor's proposal used in the calculator, was originally introduced at the start of the November 1999 Special Session.
This proposal was reintroduced as part of the Governor's budget presented at the start of the Spring 2000 Regular Session.
Highlights of the Governor's 2000 proposal:
- Eliminate the state sales tax on grocery food. Cities, counties retain local tax.
- Reduce state sales tax rate from 6 percent to 3.75 percent. Cities, counties retain local sales tax. Sales tax on hotels, motels, amusements, rental cars, tobacco and alcohol products remains 6 percent.
- Create a flat tax of 3.75 percent on adjusted gross income. Excludes Tennessee state, local and federal bonds.
Basic exemptions of:
- $5,000 for a single taxpayer,
- $6,500 for head of household,
- $10,000 a couple.
Additional deductions of:
- $5,000 for each taxpayer age 65 or older.
- $3,000 for each additional dependent.
- Repeal Hall Income tax on dividends and interest (same as 1-3-5 proposal).
- Reform business taxes. Repeal excise tax on Pass- through entities. Increase excise tax on corporate earnings from 6 to 6.5 percent.
- Reform death and gift taxes. Limit death taxes to amount that can be taken as a 100 percent credit against federal estate taxes. Repeal inheritance tax when higher. Raise all gift tax exclusions to $10,000 to match federal levels.
- Seek super majority (or three-fifths) vote to increase tax rates.
Impact of the Governor's Proposal on Different Income Groups
Most Tennesseans will pay less taxes.
| 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 |
+0.6% |
+1.4% |
+1.9% |
+2.4% |
+2.8% |
+2.8% |
+2.3% |
| Sales and Food Tax Savings |
-2.3% |
-2.2% |
-1.9% |
-1.5% |
-1.1% |
-0.7% |
-0.4% |
| Tax Reform Effect |
-1.8% |
-0.8% |
-0.0% |
+0.9% |
+1.7% |
+2.2% |
+1.9% |
| Federal Offset |
0.0% |
0.0% |
0.0% |
-0.1% |
-0.4% |
-0.7% |
-0.9% |
| Net Tax Effect |
-1.8% |
-0.8% |
-0.1% |
+0.7% |
+1.3% |
+1.5% |
+1.1% |
Notes: Addition discrepancies due to rounding. The state income tax calculations
above account for the Hall Tax savings as it is replaced with the income
tax. The state income tax can be used as an offset to federal taxes and
reduce the federal tax liability as noted above. Calculations provided
by the Institute on Taxation
and Economic Policy (ITEP)
Click
here to download report from the Institute on Taxation and Economic Policy analyzing both the Governor's proposal and the 1-3-5 proposal (in PDF Format).
Tax reform is about creating a more equitable and fiscally sound tax system that meets the state’s financial needs.
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