RESEARCH

Tennessee has established itself as a pro-business state with a low tax burden, attracting individuals and businesses alike. Following Tennessee voters amending the state constitution to prohibit lawmakers from ever proposing an income tax, the Volunteer State has repealed death and gift taxes, the Hall Tax—an income tax on stock and bonds—and other large tax cuts through the being the first and only state to decouple from the federal “innovation tax,” Tennessee Works Tax Act, and cutting the state’s franchise tax. Tennessee has solidified itself with a favorable economic climate.

Despite its low taxes and strong economic performance, Tennessee still has opportunities to improve its economy and tax policy. For example, Tennessee’s excise tax, similar to a federal corporate income tax, ranks the highest with Alabama for all eight states surrounding the Volunteer State. 

Beacon’s latest report, “Tennessee Trends: The State of Tennessee’s Economy,” provides a detailed analysis of the state’s economic strengths and weaknesses, and highlights Tennessee’s impressive economic growth in recent years, surpassing both the national average and neighboring states in key metrics. The report takes a comprehensive look at our state’s economy, potential policy changes that could improve the lives and livelihoods of Tennesseans and their businesses, and projects changes with economic modeling thanks to economist Richard Evans at the Abundance Institute.

To further enhance Tennessee’s economy, lawmakers should look at implementing additional tax reforms. Some key findings in the report include the following:

• Tennessee’s economy for years has outperformed the nation as a whole and all surrounding US states in terms of key macroeconomic figures such as unemployment, GDP growth, and personal income growth. 
• However, the state’s labor force participation rate is lagging further behind the national average.
• State policymakers should consider additional tax reforms to maintain and further incentivize the state’s strong economy. Our modeling suggests the top reforms lawmakers should consider are setting our bonus capital depreciation to 100 percent and lowering the franchise tax rate from 0.25 percent to 0.2 percent.