A recent change to Tennessee’s Hall Income Tax on investments is an excellent example of the law of unintended consequences. As Press staff writer Gary B. Gray reported in Tuesday’s paper, reducing the tax rate has been beneficial to seniors and retirees who own stock.
Unfortunately, it has created a fiscal nightmare for city and county officials struggling to balance local budgets. And it could soon place a greater burden on local taxpayers of all ages.
The state typically collects more than $160 million from the Hall tax. While that amount represents just a mere fraction of the state’s total revenue collections, local governments would feel the greater pain if the Hall tax is abolished altogether, which is the goal of some state legislators.
More than $60 million of the tax goes back to the counties and cities where those taxes are collected. Recent changes to Hall tax rate have reduced the amount returned to local governments by $790,000.
Abolishing the tax, however, would have a more significant fiscal impact. Johnson City, for example, would lose more than $700,000 in annual revenue. It would take more than two pennies on the property tax rate to replace that.
There has been talk that the Hall tax is antiquated and discourages retirees from moving to Tennessee.
It’s hard to argue that the state’s entire outdated tax structure isn’t in need of reform. Even so, singling out the Hall tax places a greater burden on local taxpayers (including retirees on fixed incomes) to make up for the loss of those revenues.
The alternative would be budget cuts that negatively impact key municipal services, such as police and fire protection.