As April drew to a close, conservatives in the Volunteer State had much to celebrate as the Tennessee General Assembly concluded its 2016 legislative session. Causing most of the excitement was the fact that the legislature’s Republican supermajority finally rid the state of any sort of income tax.
Tennesseans have long bragged that theirs is one of only a handful of states in the union that doesn’t require residents to pay an income tax on top of what Uncle Sam requires. To their credit, they haven’t been telling a complete lie. As Justin Owen, president of the Beacon Center (a Nashville-based, free-market think tank), explained to the Daily Caller last week, “although the state does not tax income from labor, it has levied a six percent tax on investment income since the establishment of the Hall Tax in 1929.”
For years, the biggest conservative critiques of the Hall Tax have been that it unfairly hits the pocketbooks of seniors who live off savings-based fixed budgets, and it drives investment and job opportunities elsewhere. Though the levy hasn’t been without defenders—namely metropolitan mayors who pad their budgets with Hall Tax kickbacks—it has come under increased scrutiny every year.
But a funny thing happened as Tennesseans rejoiced that their state (again in Owen’s words), “became only the second state in history to eliminate an income tax.” Actually, “funny” probably isn’t the best word to use, especially to the residents of that other income tax-eliminating state, Alaska.
While nails were being driven into the Hall Tax coffin in Nashville, some 3,500 miles away in Juneau, lawmakers were considering exhuming their own income tax casket, which was buried in 1980.
Thirty-six years ago, with oil boom fees and royalties flooding state coffers, Alaskans bid farewell to their income tax. Four decades later, as oil prices tanked ($30 a barrel in January) and so did Alaskan revenues, Governor Bill Walker and some legislators pondered the previously unthinkable: taxing income again.
This was no inconsequential proposal. Writing in the Wall Street Journal last weekend, Stephen Moore of the Heritage Foundation notes that “since 1990 the nine no-income-tax states—like Texas, Tennessee, Florida and Nevada—have had twice the population growth and job creation as measured by payrolls, and about one-third faster total income growth than the high-tax states like New York, California and New Jersey.” “A no-income-tax policy is a flashing billboard telling employers: We’re open for business,” he adds.
Which Alaskans know full well. The confounding thing about this Alaska tax talk is that, according to Moore, the state has “plenty of money.” The $51 billion in their Permanent Fund alone, he says, could fund the current budget shortfall for two decades.
Why the hesitancy to tap the reserve? Because every year, Alaskans are issued a “dividend” payment from that fund, and at times those checks have been as hefty as $8,000. That’s some solid cheddar. David Boyle of the Alaska Policy Forum says that “politicians don’t want to deplete the Permanent Fund. They love sending out checks every year.”
Nail. On. The. Head.
It should not be surprising that the knee-jerk reaction of elected politicians when revenue dries up is to unearth a tax so they can keep mailing out “free” money.
Luckily for Alaskans, Governor Walker tabled the income tax idea last week after catching heat from voters across the state. Now, he’s preparing for a special legislative session, where lawmakers will haggle over (among other things) spending cuts and dipping into the Permanent Fund.
Whew! That was close. Alaska’s official motto is “North to the future.” Thank goodness they resisted an unneeded blast from the income tax past.