Gov. Bill Haslam says he can’t get behind ending the state’s income tax on investments, known as the Hall tax. It’s a highly politicized tax that state lawmakers have long been trying to phase out, with some promising to sponsor legislation seeking to repeal it altogether.
Some retirees and conservative interest groups like Americans for Prosperity argue that the 6 percent tax on investment income punishes those who are living off of investments and those who have saved for retirement.
Philosophically, Haslam’s on the same page. But when it comes to actually implementing a phase-out or repeal of the Hall tax, the governor says the issue becomes more complicated. In short: how would the state replace the revenue stream?
“I agree with them 100 percent,” Haslam said at a Nashville Downtown Rotary Club event on Monday. “It’s not a good tax. But given our tax structure, given that we’re already one of the lowest tax rates in the country, it’s hard to figure out how we solve the puzzle.”
Haslam said the tax generates nearly $300 million a year for the state. Some analysts have said that cutting the tax would hit local governments the hardest.
Earlier this year, the Institute on Taxation and Economic Policy released an analysis showing that the only Tennesseans to meaningfully benefit from eliminating the cut would be the state’s richest 1 percent. Or as the institute put it:
“The Hall Tax is an important revenue source for both state and local governments, and is a rare progressive feature of a tax system that falls disproportionately on the poorest Tennesseans.”