“Most Tennesseans, however, won’t see much, if any, benefit from the Hall tax phase-out, according to the Institute on Taxation and Economic Policy, which contends sales taxes are unfair.
The state’s wealthiest 1 percent, making an average of $1.2 million, would receive tax cuts of about $870 the first year. Households in the bottom 95 percent of earners would get only 14 percent of the reduction, while those in the top 5 percent would land 61 percent of the benefit. The federal government would collect the other 25 percent because of higher federal income tax payments, since tax deductions would be fewer.
“The Hall tax plays an important role in offsetting the otherwise regressive impact of Tennessee’s tax system,” says Dylan Grundman, a senior analyst at The Institute on Taxation and Economic Policy. “Overall, the state’s tax system captures a greater share of income from low- and middle-income people than from the wealthy, but the Hall tax is one of the few taxes that runs counter to that trend.”