TennCare Boost or Tax Cut?

Some legislators are drooling at the prospect of having an extra $225 million to spend next session, but look for the Supreme Court ruling last week to instead lead to a sharp reduction if not elimination of the Hall Income Tax.

The Supreme Court said states do not have to follow through with a significant expansion of Medicaid (TennCare in Tennessee) in the omnibus health care bill called Obamacare. Former Democratic Gov. Phil Bredesen said it was “the mother of all mandates.” He and current Gov. Bill Haslam have accumulated $225 million in a special reserve fund within TennCare to pay for the expansion in benefits.

Conservative Republicans and Democrats have long called for the elimination of the Hall Income Tax, which taxes interest and dividends. It is a barrier to having wealthy retirees move to Tennessee and often is a burden for the elderly living on investment income. This past session the Legislature eliminated the Gift Tax, and the Inheritance tax is being phased out. Watch for an effort to use the TennCare reserves to fill a budget gap and either eliminate the Hall Tax or at least eliminate it for people over 65 years of age. The amount will be subject to debate depending on next year’s budget.

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