VOL. 131 | NO. 95 | Thursday, May 12, 2016
View From the Hill
Haves, Have-Nots Get Varied Tax Relief
By Sam Stockard
Amid the rancor of bathroom and counseling bills, two major pieces of legislation slipped through the General Assembly this session with hardly a peep – elimination of the Hall tax and a partial revitalization of property tax relief for seniors and disabled veterans.
House Minority Leader Craig Fitzhugh calls the Legislature’s failure to add $5 million to the pot for property tax relief “the biggest disappointment” of the year and labels disabled veterans and seniors the session’s “biggest victims.”
“It was sort of ironic that the last two bills that occurred in the House, the first one was the Hall tax to reduce the tax on richer people, and then the last bill was the veterans to increase their property tax burden,” says Fitzhugh, D-Ripley.
Considering the state had plenty of money, more than $150 million it didn’t spend, he says, the Legislature could have put several million more into the fund to help 147,000 low-income seniors and disabled veterans pay their property taxes, especially since the rolls are expected to increase.
As it was, the Legislature approved $850,000 more for the tax relief program, fully funding it, as advertised, for disabled veterans with property values of $100,000, removing an income cap for new applicants, and setting the property appraisal at $23,500 for seniors and disabled homeowners. Its budget increases to $36.2 million for fiscal 2017 from $35.4 million for this year.
But lawmakers failed to restore it to its pre-2015 condition when the veterans got tax help on $175,000 of the appraised value of their property, with no income limit, and seniors and disabled homeowners with an income limit of $28,690 netted help for $25,000 of appraised value.
A gimmicky proposal by Democratic Rep. David Shepard of Dickson, which won support by 81-3, would have pushed off an extra $5 million until the start of 2017, allowing more money without opening the budget. But it didn’t survive.
Rep. John Ragan, an Oak Ridge Republican and retired Air Force fighter pilot, tried to push a “full repeal” of legislation he passed in 2015 to lower the program’s limits after the Comptroller’s office, county trustees and AARP told him it was “unsustainable,” mainly because of an increasing number of disabled veterans.
“It made sense at the time, given our fiscal resources. However, in making the deal to carry the legislation, part of the concession I got was to be able to readdress it this year if the state’s fiscal condition improved,” Ragan says. “Obviously, it did.”
Make no mistake, Ragan says, he’s glad the program saw a funding increase for the coming year. But with the number of veterans entering the program expected to increase, he and Fitzhugh contend there won’t be as much money to go around with a “finite” pot of money.
Consequently, Ragan and Rep. Karen Camper, a Memphis Democrat, who sought more funding, refused to support the measure that came out of the conference committee and went back to the House floor for a final vote. Ragan says the conference committee “basically cut us short. …”
People assume the program is growing, with 13,186 disabled vets and 3,598 widows of disabled veterans in 2014, because of military members coming home from the Middle East, Ragan says. But the real growth is coming from Vietnam-era veterans, many of whom are suffering from exposure to Agent Orange, he explains.
In fact, Ragan recently lost his cousin, Dennis Duckworth, to the ravages of disease from Agent Orange.
“It’s a very personal situation for me,” he says. And if he wins re-election this fall, Ragan intends to continue working to return the program to its former guidelines.
The other side
Senate Majority Leader Mark Norris points out the program received a $6 million infusion of state funds in a previous budget, and he notes, “It became a political issue in the House.”
According to the Comptroller’s office, the program’s base amount of $28.4 million received supplements of $5.5 million in fiscal 2015 and $7 million this fiscal year, though overall it went up about $1.5 million each year.
In an election year, Norris, a possible contender for the governor’s seat in 2018, says he understands why Fitzhugh and other Democrats took such a stance.
“This is one of those issues that, if you think from the heart, all of us wish there were no parameters on the property tax relief program for veterans and the elderly. There isn’t anybody who wouldn’t like it just to be wide open,” says Norris, a Collierville Republican.
But based on the Comptroller’s 2015 report and supported by county trustees, the AARP and county veterans service officers, Ragan and Sen. Randy McNally put the new guidelines in place last year, Norris says.
In fact, he says, the final bill removed the definition of disability altogether to provide more benefits for a longer period.
“How can you ever compensate our veterans … for the services they have rendered to us? You can’t put a price tag on it. But long term, when there are ultimately limitations, you have to,” he says.
Lawmakers will keep looking at the program over the summer, Norris says, but he also points out it was originally set up as a county tax relief program supplemented by state government. Only 21 counties are kicking in on the program, though, forcing the state to take up much of the slack. Norris wants another look at county responsibility.
Indeed, most counties aren’t nearly as generous as Rutherford, which set aside $625,000 in this year’s budget for a maximum match, according to Trustee Teb Batey, who follows the matter closely in the Legislature.
Rutherford will put in up to $306, matching two-for-one on all three categories of applicants, enabling elderly and disabled homeowners to get up to $460 for their county property taxes and veterans to receive as much as $976 toward their final bill, according to Batey.
Trustees will take part in talks over the summer.
“For all of us who are trustees, these are not numbers. These are people we see in our office every year, folks we get to know, and it really helps,” Batey says.
Yet, he tends to side with Norris’ view, pointing out the “real concern” was adding a total of $6.2 million for fiscal 2017 would push the total program to $41.5 million and make funding it more difficult each year.
“Being consistent is important so people can count on it,” he explains.
One thing local governments won’t be able to count on much longer is the Hall income tax on investments and dividends.
Despite Gov. Bill Haslam’s opposition, the Legislature voted to cut the rate to 5 percent from 6 percent and phase it out completely by 2022. The governor wanted to take it one year at a time.
The Hall tax brought in a total of $303.4 million in fiscal 2015, with $197.9 million going to the state and $105.5 million to city and county coffers where the tax is collected.
Memphis, Nashville and Knoxville are the state’s biggest collectors, but smaller affluent cities will feel the most impact.
Germantown, just southeast of Memphis, received $3.1 million in Hall tax revenue a year ago and typically brings in $2.2 million to $3.2 million, depending on the strength of the stock market, according to Mayor Mike Palazzolo.
“That equates to anywhere from 12 to 23 cents on our tax roll, and our tax roll’s $1.93 per $100,” he adds.
“So it’s pretty significant. It’s something we’re going to have to start to plan for and budget for.”
Palazzolo, who has made saving the Hall tax his mantra over the last couple years, plans to work with Memphis Mayor Jim Strickland to push for a hold harmless provision or some other form revenue sharing to offset the reduction.
The Germantown Board of Mayor and Aldermen sent the governor a letter asking him to veto the legislation. But there’s no word yet on what Haslam will do.
“When you take away revenue, we would hope that our friends at the state level would look to change revenue streams because we’ve got to replace that somehow. In our community, it only comes from the residential property owners, so it’s (increase) property taxes or we cut services,” he says.
Norris, who previously sponsored the death of gift and inheritance taxes, filed legislation to let local governments hold on to their portion of the Hall tax, and he carried legislation to repeal it outright this year.
He certainly isn’t losing sleep over its demise and disagrees with the notion legislators are looking out for wealthy investors while not taking care of veterans.
“A lot of the veterans were talking about bearing the brunt of the Hall tax, a lot of senior citizens and folks that need the tax relief in what is supposed to be an income tax-free state,” he says.
Sen. Mark Green, a Clarksville Republican, sponsored the legislation, which is expected to lead to a 17 percent tax cut.
“It has been an absolute honor to carry this historic bill and see it to passage. The Hall income tax is a jobs killer and we have just killed the Hall income tax,” Green says in a statement.
“There will be no Hall tax on the first day of 2022; this is as good as it gets for Tennessee seniors and for businesses who want to invest in Tennessee workers.”
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.”
The Hall tax contains an exemption on the first $2,500 of investment income ($1,250 for single filers), and couples making less than $68,000 ($37,000 for single filers) don’t have to pay, the institute points out.
Once the tax is gone, the state’s richest people would gain $5,000 annually compared to $50 for most others. But local governments and their property taxpayers are at the greatest risk of paying more.
“If the Hall tax is repealed and localities respond by raising their property taxes, many Tennesseans will actually see their overall tax bills rise,” the institute reports.
Unfortunately, for property taxpayers, the Hall tax and veterans relief program got short shrift in this legislative session, as debate about restrooms for transgender students, therapy for gay people and, of course, the Holy Bible drew most of the attention.
The Tennessee General Assembly, in its haste to get the heck out of town, has a funny way of pushing through important bills at the last minute, and this year’s session was no different.
Sam Stockard can be reached at email@example.com.