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Summary of Tax Commission's Recommendation
Plan Summary and Analysis:
Specific elements of the Commission's recommendation
include:
- Lower the sales tax on non-food items by more than a third
to one unified state-local rate of 6% (currently varies from county-to-county
with a 9.75% max).
- Cut the food tax in half to one unified rate of 4% (currently,
it varies with a 8.75% max rate).
- Establish a graduated income tax with generous front-end
deductions of $15K for single filers and $30K for couples. The rates go
from 3.5% to 6% with four tiers and married families not hitting the top
bracket until they make at least $100,000 a year. This new income tax would
replace the current Hall Income Tax that only applies to limited types of
income.
Generally speaking, all three of these are elements
of tax reform that TFT has long advocated for and would make our current tax
system much more equitable. In addition, the recommendation includes lowering
certain business taxes, establishing an independent review system, and other
changes.
According to analysis provided by the Institute on Taxation and Economic
Policy (ITEP), 4 out of 5 Tennesseans will pay less under the Commission Plan.
While it doesn't completely solve Tennessee's budget problems, the Commission's
recommendation will go a long way toward creating a level playing field while
modernizing and diversifying our tax system.
Background of Tax Commission:
In the summer of 2002 as the General Assembly voted
on a one-cent sales tax hike, legisators also set up a Tax Structure Study
Commission to take a long-term view of the state's budget difficulties and
report back with their final recommendation in 2004. After two years of hearings,
testimony, and deliberation, the Tax Structure Study Commission, originally
formed in 2002 to study the state's tax system and make recommended changes,
voted in December 2004 on its final recommendation.
The basic findings of the Commission substantiate
what TFT has been saying for years – that the sales
tax is too high, that it forces low-income
families to shoulder an unfair burden, and it hurts Tennessee businesses. All of these findings just go to prove that
if you sit and look at the problem for long enough as the Commission members
did, the facts will start speaking for themselves.
In the end, the plan recommended by the Commission
is a very positive step forward. It creates a much more equitable tax system
for working families and in the process, lowers taxes for 4 out of 5 Tennesseans!
While the plan makes significant headway on tax
equity, it raises no new revenue and thus does nothing to lift Tennessee up
from the bottom of the national rankings.
The second major shortcoming of the plan is that is does not completely repeal
the food tax. Both of these however are things that can addressed as the recommendation
moves forward.
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