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Shelby Co. Voters Guide: Amendment Three

October 22, 2014

This is the fourth in a series of   Back in River City articles covering key issues and races on the November 4, 2014 ballot. Early voting is available at these locations through October 30th. Click here for a sample ballot.

Amendment Three


Tennessee is one of only nine U.S. states that does not have a personal income tax. Like New Hampshire, Tennessee does levy a tax on certain stock dividend  and interest income. The other seven  states – Alaska, Nevada, Florida, South Dakota, Texas, Washington and Wyoming –  do not tax any form of personal income.

Amendment Three expressly prohibits the Tennessee General Assembly from levying, authorizing or permitting any state or local tax on payroll or earned personal income. It also prohibits local and county governments from doing the same.The amendment allows for the continuation and future adjustment of  state taxes on individuals’  dividend and interest income by  exempting taxes in effect on January 1, 2011.

Why Is Amendment Three Needed?

Tennessee’s constitution currently states,

“The Legislature shall have power to levy a tax upon incomes derived from stocks and bonds ….”

but does not provide for a state income tax on earned income. Revenue-seeking lawmakers, however, have attempted at least five times since 1932 to pass legislation authorizing a state income tax. In 1932 and again in 1960, the Tennessee Supreme Court (TSC) appropriately ruled such attempts to be unconstitutional. Nevertheless, additional attempts were made in 1985, 1991, and in four sessions under former Gov. Don Sundquist (1999-2002). Three separate Tennessee Attorneys General have opined that, since our constitution does not expressly prohibit such a tax, the TSC might uphold legislation authorizing a tax on earned income or payroll.

Amendment Three is designed to put the issue to rest permanently. If passed, Tennessee taxpayers will be assured that future legislatures cannot consider a general income tax to balance the state budget.

In 2002, when imposition of a personal income tax seemed likely, a strident grassroots revolt led to a partial three-day shut-down of state government. Thousands of protestors flooded Capitol Hill in Nashville waving signs. Honking motorists circled the Hill for hours. The will of the people won out, and Tennessee legislators have generally refrained from broaching the subject ever since.

tenn tax protest 2002

Arguments for Yes on Three

According to a Forbes opinion piece by entrepreneur and  tax reform advocate Travis H. Brown

A “yes” vote on Amendment 3 is absolutely critical for the continued economic growth of the Volunteer State. 

Mr. Brown, author of How Money Walks – How $2 Trillion Moved Between the States, and Why It Matters uses IRS data as evidence that Tennessee gained $10.55 billion in net adjusted gross income between 1992 and 2011 from other states. Most of this wealth bled from states with high tax burdens, including California, Michigan, and Illinois. Mr. Brown quotes the mantra of renowned economist Dr. Arthur Laffer,

“Taxation doesn’t generate revenue, it moves people.” 

State Sen. Brian Kelsey (R-Germantown) sponsored the amendment legislation in the Senate and heads the statewide Yes on 3 organization. He has stated,

“Not having a state income tax has already brought jobs to Tennessee, and being able to tell employers we’ll never have one is going to bring even more jobs.”

Here’s how Tennessee’s Department of Economic Development woos new business and industry to the state:

Tennessee has long been considered a state with one of the most business-friendly economic climates in the nation with one of the nation’s lowest per capita tax burdens, no tax on personal income and no state property tax.

Currently, Tennessee is ranked higher than 35 other states on the nonpartisan Tax Foundation‘s 2014 State Business Tax Climate Index.

2014 State Business Tax Climate Index

Arguments for No on Amendment Three

Opponents argue that Amendment Three will impose too great a burden on state budget-balancing. They also contend that eliminating the option of raising new taxes on payroll or earned income will inevitably lead to increases in sales and property taxes. Sales taxes, especially taxes on necessities such as gas and groceries, are said to be regressive  because  they are uniformly applied and therefore consume a higher percentage of budgets in low-income households.

Nashvillian Dick Williams leads a No on 3 group called Citizens for Fiscal Sanity. He has been quoted in the Commercial Appeal and other Tennessee newspapers as saying,

“This is not a referendum on whether or not to have an income tax or a payroll tax, but it is a question on whether we should enshrine in the constitution a limitation on future decisions that voters may feel the need to decide. It may be an emergency or something.

AirTax cartoon“We believe that passing this amendment will inevitably lead to either higher sales taxes or higher business taxes, and on the local level, higher property taxes. If things got serious and this amendment got enshrined, possibly a statewide property tax could be considered. We think it’s clear that like everything else, governmental costs will rise, and they won’t be offset by economic growth alone.”

Amendment Three opponents also warn that increases in local and state sales taxes will drive consumers to neighboring states. Tennessee already has the highest combined state-local tax rate in the U.S.

Back in River City’s Take on Amendment Three

Your vote on this issue depends on how you feel about two issues:

1) Do you believe that taxes matter to businesses and  professional service providers when making relocation and expansion decisions? If yes, vote Yes. If no, vote No.

2) Do you believe that balancing the state budget each year should require legislators to make tough choices, including shrinking discretionary expenses, eliminating waste, and shutting down popular but ineffective programs? If yes, vote Yes. Or do you believe that government growth is inevitable, and that raising the tax burden on all wage earners is a fair means of financing new programs, subsidies, and “rainy days”? If yes, vote No.

Opponents of Amendment Three, like opponents of Amendment One, seem to be relying on scare tactics to persuade voters scared-old-lady4their way. They warn of  the bad things that might happen in a world where legislators  make unreasonable demands on a cowering people who can’t fight back. In reality, we live in a representative democracy. Tax protestors in 2002 are just one example when constituents told their legislators and governor exactly how they felt – and the elected officials had to listen.

Like most Americans (and Tennesseans), we recognize that decades of Big Government and Big Spending by both political parties have stunted small business growth, shrunk the middle class, and created a permanent underclass who will forever be denied the American Dream. Complacent voters are as responsible for this mess as politicians who live to spend other people’s money and enact public policy that is based neither on evidence nor even common sense. The only way forward is to hold our elected officials at all levels of government strictly accountable for their policies and spending.  This requires us to be better informed and more engaged; and to make personal sacrifices for the long-term well being of our families, our communities, our state, and our country.

We are voting Yes on Three.

Official Ballot Text

“ Shall Article II, Section 28 of the Constitution of Tennessee be amended by adding the following sentence at the end of the final substantive paragraph within the section:

Notwithstanding the authority to tax privileges or any other authority set forth in this Constitution, the Legislature shall not levy, authorize or otherwise permit any state or local tax upon payroll or earned personal income or any state or local tax measured by payroll or earned personal income; however, nothing contained herein shall be construed as prohibiting any tax in effect on January 1, 2011, or adjustment of the rate of such tax.”

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