Tennessee has taken this strategy the furthest: The state has the most regressive tax system in the country, according to the study: It has no state income tax (though it does tax interest on stocks and bonds) and, instead, the state relies on sales taxes and other fees to fill its coffers, although many luxury items are tax-free. Additionally, attorneys’ fees, services such as haircuts and massages, and goods for horses and airplanes are all tax-exempt.
“It’s just totally upside down,” said Dick Williams, chairman of Tennesseans for Fair Taxation, which has advocated for a state income tax. Williams’ group wants to get rid of the sales tax on food, and close some other tax loopholes. But that’s not the direction things have been going: Last November, voters passed a constitutional amendment that banned the state from levying any income or payroll tax. The measure passed by a margin of nearly two-to-one.
In 2001, Tennessee, facing an unprecedented budget crisis, debated introducing an income tax in the state. Spurred on by conservative talk-radio hosts, 2,000 protesters swarmed the Capitol, screaming “no means no,” and smashed a few windows. Riot police were called in, and a new group was born, Tennessee Tax Revolt. Almost all of the legislators who had publicly supported the income tax were voted out in the next election cycle.
