Tennesseans have good cause to kick up their heels – and, this time, it’s not just within the confines of a Nashville honky-tonk. The Volunteer State success story has been unfolding over the years, and recent announcements out of the Tennessee Finance Department show the financial benefits of a well-informed, sound tax structure.
Last week, officials revealed the very good news that Tennessee brought in nearly $800 million more than budget estimates of tax collections during the first ten months of the fiscal year. Finance Commissioner Larry Martin lauded the unpredicted overage and, importantly, stated that the large totals owed primarily to sales-tax revenue.
For free-market economists, large corporations, and small businesses alike, sales taxes have long been the most desirable and stable form of taxation. Rather than putting a price on work – as with the most volatile and mobile of levies, income tax – sales tax is applied evenly and allows for a steady stream of tax revenue.
In Tennessee, the numbers tell the story. Sales tax collections are the government’s main source of revenue, and in fact totaled $33.5 million more than estimates for the month of May 2016 and 6.49 percent higher than in May 2015. For that ten-month period that the Tennessee Finance Department analyzed, sales taxes were totaling $345 million higher than estimates, and the year-to-date growth rate was a notable 7.81 percent. Even more notable: Tennessee achieves these impressive results without levying an individual income tax on its residents.
While the news from this fiscal year is more than encouraging, Tennessee’s economic ascent has been quite a few years in the making. According to individual taxpayer records from the Internal Revenue Service, between 1992 and 2014 Tennessee gained $12.36 billion in net adjusted gross income (AGI). Perhaps not surprisingly, the bulk of that wealth-migration came from states that discourage growth and innovation via prohibitively high income-tax rates; the two main income-contributors are California (which sent $1.43 billion to the Volunteer State in that 22-year span) and Illinois (which sent $1.36 billion).
Fortunately, the encouraging news out of the Tennessee Finance Department is far more than numbers on a ledger. The ripple effect of this unexpected surplus is being felt throughout the economy. A new study by the Boyd Center for Business and Economic Research at the University of Tennessee (Knoxville) shows that the state’s economic growth is outpacing the national average, which should equate to a greater number of jobs as well as higher earning potential for Tennesseans. What’s more, Tennessee’s unemployment rate is a relatively low 4.3 percent for April 2016, below the national average of 5 percent.
The lead author of the Boyd Center, Matt Murray, said in a recent interview, “The state economy has seen remarkable improvement in the last several quarters. April’s drop in the unemployment rate was exceptionally good news.”