After Repeal of Tennessee Income Tax Fails, What’s Next for the Hall Tax?

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In April, residents of Tennessee got some disappointing tax news: Once again, their state legislature failed to repeal the Hall tax.

This Tennessee income tax has been a drain on the state’s economy for years, which is why this latest vote is so frustrating. It’s important for Tennessee residents and the country as a whole to understand what’s going on so that they can push their lawmakers toward better policies.

The Hall Tax: Tennessee’s Tax on Income

For the most part, Tennessee’s tax policies are a model for the rest of the country because the state doesn’t charge regular income tax. However, Tennessee does charge the Hall tax, which is a flat 6 percent tax on interest payments from bonds and dividend payments from stocks. This tax puts a strain on all Tennessee residents who are trying to grow their savings, and it can be especially bad for two groups crucial to the state’s economy: retirees and business owners.

Retirees primarily depend on their investments for income, meaning that the Hall tax can really squeeze their budgets. It can also negatively affect business owners, because many companies are structured so that profits are paid out as dividends. The Tennessee income tax hurts both these groups and encourages them to live elsewhere, which is something the state can’t afford.

Results of the Latest Vote

Tennessee Governor Bill Haslam has expressed in the past that he would like the see the Hall tax repealed. When he was reelected in November 2014, some thought he would move forward with repealing this income tax right away. Unfortunately, several months later, the Tennessee legislature failed to pass measures that would have repealed the Hall tax.

Still, there is a silver lining: The Tennessee government has increased the exemption limit for retirees, which is the amount this demographic can earn per year without owing the Hall tax. Beginning in January 2016, the exemption limit for retirees will increase from $33,000 for individual filers and $59,000 for joint filers to $37,000 and $68,000, respectively. While this isn’t as good as a full repeal, it’s still a step forward.

Next Steps for the Tennessee Income Tax

If Tennessee is ever going to repeal the Hall tax and become completely free of income taxes, residents need to get involved. There are lawmakers in both the Tennessee House of Representatives and the Senate who are undecided on this issue. The governor also needs to be reminded about his goal to get rid of this tax. Residents must let their representatives know that this issue is a priority and that they should keep the momentum going toward full repeal.

It looked like 2015 might’ve been the year when Tennessee finally got rid of the Hall tax, but it hasn’t yet shaped up that way. Perhaps next year, lawmakers will finally eliminate this unnecessary tax burden so that Tennesseans can enjoy the economic benefits of living in a true income-tax-free state.