Sunday we examined the benefit for the ultra wealthy with the elimination Tennessee's 90-year-old Hall Income Tax that is shared with local governing bodies. Today's continuation is to look at Tennesseans who are not ultra wealthy and the increase of other taxes and fees in The IMPROVE Act that was signed into law on April 26, 2017, by Gov. Bill Haslam.
Even those who do not see themselves as wealthy and who receive dividends or interest that is taxable will find their Hall Income Tax going to zero. For example, if your taxable dividends and interest (after the $1,250 for single or $2,500 for married exemption) was $10,000, your taxes would have been $600. Using the same amount for the tax year of 2019, your taxes will be $200. In 2021 the tax will be zero!
These legislators (Sen. Rusty Crowe and Reps. Matthew Hill and Micah Van Huss) touted the IMPROVE Act as a reduction in the sales tax on food and the repeal of the Hall Income Tax. Did they tell you the IMPROVE Act would raise the tax on gasoline, diesel, natural gas or propane gas for three years in a row or that other fees would be increased? Well no, that would be transparent. They will say that they did. However, their main talking point was a reduction in the sales tax on food and the elimination of the Hall Income Tax. The amount you saved with the reduction of 1% sales tax on food was gobbled up with the 6 cents increase on the gasoline tax.
In addition, the state eliminated the gift tax with repeal in January 2012. The state's estate tax was repealed effective on January 1, 2016. The wealthy bandits just became wealthier at the expense of middle-income taxpayers. Both the gift tax and estate tax were sources of revenue for the state of Tennessee. The more affluent citizens of Tennessee have received some of the best benefits by having their taxes go to zero. The Hall Income Tax is the third tax set for repeal. When you eliminate one source of revenue to fund the state budget, you have to look for other sources to make up for the ones you eliminate. That is exactly what the IMPROVE Act actually accomplished.
Tennessee has the highest average combined state/local sales tax rate of all states at 9.46%, according to the Tax Foundation. Locally, the sales tax rate is 9.5% on everything except food. The Improve Act also had a 1% reduction in the state sales and use tax on food. The state sales tax rate on food is 4% as of July 1, 2017. The local sales tax is 2.5% making for a total of 6.5% on food.
Sales tax affects the low-income residents more because they have no choice but to spend most of their income on taxable items, which puts the low-income citizens close to a 10% tax on their everyday expenditures. Those who are wealthy spend less of their total income on items that include a sales tax, so their effective rate is lower than 10%. No matter how you look at this, the sales tax is an unfair tax on those who have the least amount of income.
According to a study by economists with the Federal Reserve, not only Tennessee but Mississippi and West Virginia have structured their tax codes so that middle- and lower-income families pay a larger share of their incomes than wealthy families do. This is an example of inequality at its worse and brought on by those in the Tennessee legislature.
The study also indicated Tennessee has the most regressive tax system in the country. To make matters even worse than they already were, the voters of Tennessee passed a constitutional amendment that bans the state from levying any income or payroll tax. Wonder who bankrolled that agenda in the state? It wasn't the low-income citizens. And now the wealthy have received another gift of income with the elimination of the Hall Income Tax.
The IMPROVE Act raised the gasoline tax over three years from 20 cents to 26 cents with the last increase becoming effective on July 1 of this year. The diesel tax went from 17 cents to 27 cents. Some of the additional revenue from the fuel tax increases goes to local governments to fund roads. The rest of the additional revenue funds improvements in state roads. The compressed natural gas tax increased over three years from 13 cents to 21 cents. Liquefied gas tax increased from 14 cents to 22 cents.
In addition to state taxes on fuel, the federal government collects the following taxes on fuel: gasoline 18.4 cents per gallon, diesel/kerosene 24.2 cents per gallon, liquefied petroleum gas 18.3 cents per gallon, liquefied natural gas 24.3 cents per gallon, and compressed natural gas 18.4 cents per gallon.
The total gasoline tax in Tennessee is 45.8 cents per gallon. It includes a special tax of 1 cent, an environmental assurance fee of .004 cents, 26 cents fuel tax and 18.4 cents federal fuel tax. So the tax on 10 gallons of gasoline in Tennessee is $4.58. How often do you fill your automobile's gasoline tank? When the tax you pay is not identified as a separate item at the fuel pump, many citizens fail to realize they are paying a fuel tax. Because of the lack of transparency at the fuel pump, most citizens believe the price for a fill up is the cost of gasoline.
The annual miles traveled per driver on average in Tennessee are 14,791. If you get 20 miles to the gallon you would need approximately 740 gallons of gasoline. At 45.8 cents per gallon, your gasoline taxes are $338.92 per year in addition to the real cost of gasoline at the pump. If you drive more per year, the cost of gasoline taxes is higher and if you drive less per year the cost of gasoline taxes is lower. You can lower the fuel tax amount by having a more fuel efficient automobile or drive less.
In July 2017, the cost to register a vehicle per year increased by $5. Commercial vehicles increased by $10 and semis and tractor trailers increased by $20. In addition, if you are environmentally trying to reduce air pollution and you purchase an electric vehicle, a new registration fee of $100 became effective on July 1, 2017. That fee is in addition to the standard registration fee of $29. All of these increases in fees were a part of the IMPROVE Act.
It is called, “let's play the tax shuffle.” We take the tax off of an item and place additional taxes on other items. The wealthy Tennesseans reap bigger benefits of tax savings and the low-income Tennesseans pay more taxes. Perhaps the most important part of this article is the motto of the Johnson City Press: “What the people don't know, will hurt them.” And now you know. We need new blood in the Tennessee legislature that represents all Tennessee residents, not just the wealthy.
Ed McKinney of Johnson City is a retired business teacher.