KNOXVILLE, Tenn. — A federal tax cut might help Tennessee more than most states, but it probably would do little to boost the U.S. economy, a University of Tennessee economist said Thursday.
Dr. Matt Murray said the cut could spur consumer spending and boost sales tax revenues that play a bigger economic role in Tennessee than in other states.
How much the state benefits depends on how long the tax breaks extended, Murray said.
“A large, one-time tax cut would increase consumption and spending and buoy the sales tax base,” Murray said. “That would be of considerable help to Tennessee’s economy, which relies more heavily on sales tax than most states.
“However, under a long-term cut, consumers are more likely to save the extra money rather than spend it. The same tax reduction over 10 years would have less impact on the state’s economy.”
House Republican leaders have cleared a 10-year, $792 billion tax cut proposal for House debate.
Murray said this type of long-term tax break is not likely to significantly bolster U.S. economic growth.
“The U.S. economy is reasonably strong and does not need a lot of help right now,” Murray said. “The degree to which taxes discourage economic activity and tax cuts encourage economic growth has been grossly overstated.
“The federal tax rate is simply not overly burdensome for most individuals.”
Dr. Bill Lyons, a UT-Knoxville political scientist, said a federal tax cut is not that important to most Tennesseans.
“Avoiding a state tax increase is a high priority for Tennesseans, but when it comes to national politics, a tax cut is not,” Lyons said.
“Those proposing tax cuts are finding there is not a large Tennessee constituency out there demanding a tax cut right now.”