Key Elements of the Tax Modernization & Economic Stimulus Act

Completely repeal the state and local sales tax on grocery food.

Currently, the state sales tax on food is 5.5%, and local governments can add up to 2.75%, for a maximum of 8.25%. This will be zero.

Reduce the sales tax on non-food items to a new, combined rate of 6.75%.

Currently, the state sales tax on non-food items is 7%, and local governments can add up to 2.75%, for a total of 9.75%. Because of the current “single article cap,” an inexpensive used car is taxed at 9.5%, while a new sports car is taxed at 7%. Under the new plan, one simplified, universal sales tax of 6.75% would apply across the state, regardless of the size of the purchase or the taxing jurisdiction.

Eliminate the Hall Income Tax.

The Hall Income Tax, which is applied to certain types of investment income at a rate of 6% with deductions of only $2,500 for couples, would be repealed. This will be replaced by the broad-based income tax, outlined below, that will apply to both earned and unearned income. For retirees living off investment income, the family deduction will go up from $2,500 under the Hall Tax, to $35,000 under the new income tax.

Hold local governments harmless.

Any losses incurred by local governments from the sales tax reductions and repeal of the Hall Income Tax will be reimbursed by the state so local governments will not be negatively effected.

Establish a broad-based, graduated income tax with generous personal deductions.

The new graduated income tax will have a front-end exemption of $17,500 for single filers, $35,000 for filers married and filing jointly, and a deduction of $2,500 for each dependent. As a result, a family of four would pay no income tax on the first $40,000 of income. The income tax will include six tax brackets with rates from 3.5% to 7.75%, with the top bracket not kicking in for married filers until they make at least $255,000 per year ($260,000 for a family of four).