Fewer taxes does wonders for Tennessee’s economy, report says

By Chris Butler  /  Tennessee Watchdog

Tennessee has the nation’s fifth-best economic outlook, says a new report that attributes the ranking to the lack of a state income tax and to lawmakers eliminating other taxes.

A while back, state legislators phased out the Hall Income Tax over six years of scheduled reductions.

Tennessee and other states with similar tax policies may reap big rewards in the 2020 reapportionment, says the authors of the 2017 edition of “Rich States, Poor States,” released Tuesday.

Art Laffer (photo courtesy of Twitter)

Art Laffer (photo courtesy of Twitter)

The Arlington, Virginia-based American Legislative Exchange Council does the report every year.

This year’s ranking is another move up for the Volunteer State. The 2015 report ranked the state at No. 17. Last year’s report, however, ranked Tennessee No. 7 in terms of economic outlook.

Simply put, according to the report, “Americans in states with poor economic policies increasingly vote with their feet and move to states with better opportunities and brighter horizons.”

And Tennessee benefits, says report authors Art Laffer, Stephen Moore and Jonathan Williams. Laffer was on President Reagan’s Economic Advisory Board and is credited as “the father of supply side economics.”  Moore wrote for the Wall Street Journal, and Williams is ALEC’s chief economist.

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Their report examined state migration trends and how tax policies affect those trends.

Tennessee’s Hall Income Tax, for instance, assesses income earned from investment, realized capital gains and savings.

Stephen Moore (photo courtesy of Twitter)

Stephen Moore (photo courtesy of Twitter)

“Taxes on investment income are often assumed to apply mostly to the rich, but not so with the Hall Tax, where more than half of those paying it earn less than $75,000 per year,” the authors said.

“Most of those paying the 6 percent tax are hopeful entrepreneurs, working-class families, retirees and soon-to-be retirees who especially depend on their savings and investments for retirement.”

The authors said the tax forces fewer individuals to partake in those activities. Revenue from that tax composed less than 1 percent of Tennessee’s budget, making it “unlikely to harm the state’s ability to fund its budget,” they added.

Repealing that tax and the state’s death tax make Tennessee more competitive, the report said.

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“By repealing the death tax, lawmakers helped more small businesses and farms remain family owned and put Tennessee on even footing with the majority of states in terms of attractiveness for retirement and estate planning,” the authors wrote.

Abolishing that tax means state officials are collecting more than $150 million in tax revenue beyond original projections, the authors wrote.

The authors considered 15 variables before ranking each of the states, including property tax burdens, sales tax burdens, the state’s minimum wage, and whether it was a Right-To-Work state, among others.

Right-To-Work states, including Tennessee, guarantee that no person must pay dues to a labor union as a condition of employment.

Jonathan Williams (photo courtesy of Twitter)

Jonathan Williams (photo courtesy of Twitter)

“From higher wages, to better job opportunities, to higher quality of life, it is no surprise that right-to-work states experience much higher in-migration and economic growth than their forced-union counterparts,” according to the report.

“Increased population growth has meaningful impact further down the road, as it is likely a majority of the Congressional seats will exist in right-to-work states after the 2020 reapportionment.”

Utah was first on this list. North Dakota, Indiana, and North Carolina were also ahead of Tennessee this year.

New York state ranked as the worst for economic outlook. New York, the report added, “had the greatest out-migration with nearly 1.5 million people.”

“As Washington, D.C., has produced gridlock on the issue of pro-growth tax reform, hardworking American taxpayers can take solace in the fact that the 50 ‘laboratories of democracy’ are indeed generating tax competition among the states for jobs, businesses and economic opportunity for all,” the report said.

Contact Christopher Butler at chris@tennesseewatchdog.org

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