While the sales tax is the workhorse of Tennessee’s budget, it’s also seen by critics as a “regressive tax” in that it takes a larger percentage of income from the pockets of lower-income and, some say, middle-income earners than those with higher incomes.
Heavy reliance on the sales tax has thrust Tennessee into the No. 6 slot in another Washington, D.C.-based think tank’s rankings, the “Terrible 10” list, compiled by the Institute on Taxation and Economic Policy.
Noting that “you have to fund government somehow,” ITEP Research Director Carl Davis said the fairest way is a “three-legged stool,” which in addition to the sales tax and similar excise taxes includes income taxes and property taxes as the two other legs.
Most states rely on a variety of taxes and fees to get their revenue.
“It’s pretty well established that sales taxes fall more heavily on the poor and middle class,” Davis said. Most states, Davis said, also have a personal income tax “to balance it out” when it comes to wealthier residents. Read more