According to U.S. Census data, Tennessee’s total population is 6,038,803. Our labor force, those 16 and older, is 3,000,398. In 2007, Tennessee brought in $6,902,427,978.03 in sales and use taxes. That’s exactly $2,300 per person in the state’s labor force paid to the state is sales taxes alone, or $4,600 per average family (of 2 tax payers).

When recently presented the idea of implementing a sales tax reduction in exchange for creating a state income tax (as I discussed on November 14, 2008), a “statistically equivalent” number of Tennesseans were in favor of that plan than were for the status quo.

Here’s why.

Tennessee’s high sales tax cost the average Tennessean more than they would pay in state income taxes. Our dependence on the sales tax disproportionately affects the poor and middle class and forces local municipalities to encourage retail sprawl, further eroding quality of life in Tennessee.

Cutting the sales tax 3% points would result in the average worker in Tennessee saving roughly $670 per year and the average family saving roughly $1,500 per year in sales taxes. A reduction in the sales tax would have a dramatic affect on the budgets of the poorest Tennesseans and could help increase consumer spending.

A 3% point reduction in the sales tax would also have a dramatic affect on state coffers reducing state revenues by $2 billion annually. To make up for the reduction in sales tax revenues, a scaled state income tax would shift the tax burden away from the average Tennessean to the minority of top 5% income earners and lower rates for the majority of average income earners.

Here’s Nashville Scene’s Pete Kotz on the subject of a state income tax:

Yes, the possibility of an income tax makes Robin Smith’s head explode, and forces Democrats to scurry in retreat like fearful chipmunks. But Howell, an organizer for Tennesseans for Fair Taxation, believes the time may be right to make it happen.

Given Tennessee’s deep financial problems and persistently low rankings in all kinds of quality of life listings, he says the legislature is more receptive than ever before, and may even contain some Republican support. And though the issue doesn’t play well in sound-bite politics — Ooooo nooooo, taxes are evil! — he hears “a good bit of support” when he talks to civic groups and there’s time to air out the discussion. After all, the current system of charging $8 in taxes for a loaf of bread isn’t exactly popular. If someone could articulately make the case that we could lower sales taxes on necessities, he thinks it has a reasonable chance of passing.

This entry was posted on Tuesday, March 10th, 2009 at 12:39 pm and is filed under Business, Economy, Legislation, Politics. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.