The Occupy Wall Street movement is gaining steam daily. The statistics regarding income inequality in the U.S. to which the movement has brought attention is staggering to say the least. These statistics got me thinking: what do the top earners in our state make and how does that translate to the regressive tax system in Tennessee?
Statistics regarding income in Tennessee are sparse at best; I found the most detailed statistics regarding income inequality in Tennessee on the IRS website from their most recent 2004 report. What the data from the report shows is that the top 2% of households in Tennessee have an adjusted gross income of $537,000 per year, compared to the average $19,500 adjusted gross income for the most populated under $50,000 tax bracket. Indeed, 74% of Tennesseans fell in this lowest tax bracket. The percentages of Tennesseans in the other tax brackets were as follows:
- $50,000-$75,000: 13%
- $75,000-$100,000: 6%
- $100,000-$200,00: 5%
- $200,000 and up: 2% (the top two percent mentioned above as earning a mean of $537,000)
The spreadsheet to which I am referring for these statistics can be downloaded here.
Keep in mind that the income gap has likely grown since 2004, since total income in Tennessee has increased since then (as shown by the chart below), while the median household income in Tennessee has not experienced much change.
Now, what does this say about the way Tennessee taxes its citizens? Well, quite simply, it says it is backwards. For instance, the 74% of Tennesseans in the lowest tax bracket are likely spending every last dime of their income, and 70% to 80% of this income is spent on taxable goods and services.
On the other hand, those in the top two income tax brackets (7% of Tennesseans) only spend about 20% to 30% of their income on taxable goods and services.
Put simply, this equates to a tax system where tax rates go down as incomes go up--a regressive tax structure. It is unfair to ask the average Tennesseans, the 74%, to carry the tax burden; this burden should be shifted to those who can afford it--the top 7%. This could be accomplished by implementing a state income tax which would therefore allow the state to drastically reduce our sales tax rate, one of the highest in the nation, and eventually eliminate the sales tax on food, also one of the highest in the nation (not to mention Tennessee is only one of a handful of states who even tax food).
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