The Tax Modernization & Economic Stimulus Act will:
Give targeted tax breaks to families hardest hit by the current economic downturn
This plan will provide much needed tax breaks to 60% of Tennesseans, those low- and middle-income families most likely to put that money back into the local economy. For example:
- A family of four making $20,000 will save over $550 per year.
- A family of four making $35,000 will save over $700 per year.
- A family of four making $50,000 will save $475 per year.
- A family of four making $60,000 will save $200 per year.
- A family of four making $70,000 would pay $160 per year more.
- Families will not hit the top income tax bracket until they make over $260,000/yr.
To see how tax modernization will affect you, use our Tax Calculator.
Tennessee’s unjust food tax would be completely repealed
 Religious leaders, policy makers, and others have long recognized that the taxation of grocery food is one of the most unjust and unfair taxes any state can levy, and hits the least affluent the hardest. As a result, 36 states do not tax food at the state level, including several that have repealed their food taxes in the past few years. However, Tennessee still has the third highest average combined food tax in the nation, which takes an equivalent of 29 days worth of groceries from every Tennessee family each year. Groceries represent about a fourth of the budget of many low-income, working families, but about one twentieth of the budgets of wealthy families. Example: A $4.00 gallon of milk is an insignificant expense to a family earning $100,000 but is a real drain on the wallets of families making less than $20,000.
Create a more equitable distribution of taxes across all income groups
Under Tennessee’s existing tax structure, low-income families pay over three times the taxes as the state’s wealthiest as a portion of income. Middle-income families pay twice the taxes as the wealthiest. That’s because the sales tax, which accounts for an overwhelming majority of the state’s revenue, disproportionately hits lower-income families. That’s because the sales tax is applied to food, clothing, furniture, appliances, and other consumable items that make up the budget of most working families. The sales tax does not however apply to real estate investments, stocks and bonds, college tuition or private K-12 education, attorney fees, or maid service.
By shifting away from our dependence on the regressive sales tax, and instead embracing a more diverse and balanced tax system, the tax share would be distributed more equitably. The remaining sales tax will still fall more heavily on lower-income families, but that would be largely offset by the progressive nature of the income tax.
Animation driving you nuts? Download the PDF handout of the Tax Modernization Act with before and after graphs.
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Tennessee would be able to compete more effectively with its neighbors
With 50% of the state’s population living in counties that border another state, Tennessee’s high sales tax, currently the highest, average combined rate in the nation, and the high food tax, drive shoppers over state lines and onto the Internet. This hurts Tennessee’s home-grown businesses struggling to compete, and causes significant job loss to the state, losses Tennessee can ill-afford in these trying times. Additionally, our state residents end up funding the school systems in neighboring states instead of the school systems here at home.
Raises over $1 billion to meet the current budget shortfall and invest in public structures essential to Tennessee's future and strengthening the common good
The Federal stimulus package will not solve Tennessee’s current budget difficulties, as it is limited in what Tennessee can use it for and it is only temporary. As the federal stimulus runs out, Tennessee will be right back to where we started, with a $1 billion budget shortfall jeopardizing the public structures essential to a strong economy and healthy communities.
Secondly, the federal stimulus will do nothing to change our rankings relative to other states in a host of important investments from education to health care to environmental protection, since all states are receiving the stimulus. To lift Tennessee up from the bottom, we need to change policies here at home. Even with the additional $1 billion this plan raises, Tennessee will still be a low-tax state, moving from 49th to 45th in state and local taxes as a percentage of income.
Approximately $500 million of that increase would actually be passed on to the federal government by citizens due to itemizing their state income taxes paid on their federal tax returns.
Create a tax system that can stand the test of time
Tennessee receives roughly 70% of its tax revenue from the sales and other consumption taxes. A variety of factors, including the shift to a service-based economy, the growth of Internet and cross-border sales, and changing spending patterns, have eroded the sales tax base over the last several decades. To make up for this, legislators have responded by raising the sales tax rate. In fact, even with the sales tax increases of 1971, 1976, 1984, 1992, and 2002, taxes as a percentage of personal income in Tennessee have actually declined since 1970. Meanwhile, Tennessee now has the highest average state and local sales tax in the nation, which is damaging the state’s ability to compete and placing an unfair share of taxes on low- and middle-income families.
By modernizing our tax system, including diversifying the revenue sources our state depends on, Tennessee will be able more effectively to manage its finances over the long haul. That’s because income taxes are not affected by such economic factors as the shift to a service-based economy or the growth of Internet sales, thereby providing a more stable and reliable revenue source for important public programs.
By moving past the endless cycle of budget shortfalls that have dominated state politics, in both good and bad economic times, legislators would be free to focus on the long-term planning that it will take to build an economy and a state that can compete in the 21st Century.
Download printable handout about the Tax Modernization Act.
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