1ATLAS NETWORK’S LEADERSHIP ACADEMY - THINK TANK IMPACT CASE STUDY

Using polling, message testing, digital media – and football! – to change minds and influence policy

Tackling the Hall TaxBEACON CENTER OF TENNESSEE

FEBRUARY 2018

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OVERVIEWSince 1929, Tennessee residents have been saddled with an onerous tax on investment income. Though many perceive the state to be income tax-free, that was not actually the case. In order to encourage state lawmakers to make Tennessee, the ‘Volunteer State,’ truly income tax-free, the Beacon Center of Tennessee (or the Beacon Center) implemented the following steps to change minds and influence policy through a robust digital campaign:

� Recruited knowledgeable experts in the fields of digital advertising, video production, and market research.

� Polled Tennessee residents to determine the baseline of understanding of the issue and establish messaging that would be most effective at motivating people to action.

� Created and launched a targeted sports-themed video campaign that educates the public, builds support, and then encourages actions like signing petitions and emailing legislators.

� Used data received from social media to continuously hone messaging.

Because of the team’s tireless work and the success of this program, the Beacon Center was one of the six finalists for the 2017 Templeton Freedom Award.

ABOUT THE BEACON CENTER OF TENNESSEEThe Beacon Center is a nonprofit, nonpartisan, and independent organization dedicated to providing expert empirical research and timely free market solutions to public policy issues in Tennessee. The organization advances the principles of free markets, individual liberty, and limited government by pushing for legislation that gives Tennesseans more control over their own lives. Whether those reforms result in the right to earn an honest living, make individual healthcare decisions, or choosing where to send children to school— the Beacon Center strives to make Tennessee the freest, most prosperous state in the nation.

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The Beacon Center has successfully pushed for bold reforms in education, healthcare, economic regulation, and tax policy. In 2012, the organization spearheaded the campaign for tax cuts on the state’s estate and food taxes.

In 2015, the Beacon Center orchestrated the passing of the Individualized Education Account program (IEAs) for students with special needs—making Tennessee the fourth in the nation to pass these Education Savings Accounts.

By pushing for sound public policy at the state and local level, the Beacon Center is changing the lives of Tennesseans.

HISTORYThe state of Tennessee has long

promoted itself as an income tax-free state, but that claim wasn’t entirely true. While income from labor is not taxed, Tennessee imposed a 6 percent tax on investment income. The tax, known as the “Hall Tax,” was established in 1929.

Tennessee and New Hampshire are the only states that tax certain dividend and interest income, but not wages and salaries.

Justin Owen, the Beacon Center’s president and CEO, said “this tax is particularly harmful to retirees who live on fixed incomes and disproportionately rely on their savings to make ends meet.” In addition, it has the unintended consequence of driving investors and job creators away to states like Florida,

Nevada, and Texas that are truly income tax free.

For more than two decades, legislators in Tennessee attempted to put an end to the Hall Tax, but failed. While tax rates were lowered, the Hall Tax remained.

However, since Republicans gained full control of Tennessee’s governor’s mansion and legislature in 2011, the Hall Tax had been a steady target. Unfortunately, many favored gradually lowering the tax rate or continuing to increase the exemption levels rather than pushing for a full repeal.

After receiving a sizeable foundation grant in 2015, the Beacon Center made the complete elimination of the Hall Tax one of its top priorities. With its elimination, Tennessee would become only the second state in history to repeal an income tax.

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GETTING TO ACTIONThe Beacon Center decided in

November 2015 to make the full elimination of the Hall Tax the organization’s primary goal during Tennessee’s upcoming legislative session. This meant the organization only had fewer than three months to convince legislators to repeal the tax.

After seeking advice from the State Policy Network, a network of approximately 65 free-market think tanks located across the United States, the Beacon Center assembled a group of experts in the fields of digital advertising, market research, and messaging.

With the team in place, Heart+Mind Strategies – a research-led consulting firm that uncovers how target audiences think, feel, and make decisions – began polling and message testing across Tennessee. The team utilized the results from a telephone poll of 600 Tennessee residents to determine their audiences’ level of awareness about the issue, figure out how to improve that understanding, and identify some of the messaging that could motivate people to action.

“If you invest 5 – 10 percent of your campaign budget upfront in polling and message testing, you will use the other 90 percent of your funding more effectively,” said Owen.

When the poll results came back, it was clear that the team faced two problems: First, after years of trying to educate the public about the Hall Tax, only 17 percent of residents were aware it existed. Second, when Tennesseans did know about the tax, they misunderstood it as something only a few, very wealthy state residents were required to pay. In fact, the polling data showed that just 42 percent of Tennesseans supported the repeal of the Hall Tax.

The public’s misperception that repealing the Hall Tax would be a tax cut for the wealthy meant that even lawmakers who agreed with the Beacon Center’s plan felt unable to publicly oppose the tax.

The Beacon Center met with the team of marketing and media professionals (Heart+Mind Strategies, the Zoldak Agency, and Emergent Order) to

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determine the most effective outreach methods to gain attention from the intended target audience.

The team decided on a three-part strategy to accomplish their campaign goals: Educate > Engage > Reform. They first raised awareness about the Hall Tax and why it was bad for Tennesseans and the state’s economy. After elevating public awareness, the team provided ways for them to easily get involved and make their voices heard. This innovative technique “not only curates a trusting and involved group of supporters but also saves money by avoiding reaching out to those unlikely to take part,” said Sue Zoldak, founder of the Zoldak Agency and one of the experts hired by the Beacon Center.

Emergent Order, a full service creative agency based in Austin, TX, created four videos that were tested with focus groups. Many of the ads performed well, but the Beacon Center selected the one ad that resonated more effectively with its target audience (35 – 54 year old engaged voters with a college education making $50,000 – $100,000 per year). This football-themed video, “Tackle the Hall Tax,” embraced humor and Tennessee’s residents’ love of football and respect for a strong work ethic.

The campaign launched publically in January, the beginning of Tennessee’s legislative period.

By presenting the Hall Tax as “not in the Tennessee Way,” and explaining that the tax impacted all Tennesseans

� Screenshot from Beacon Center’s football-themed video, “Tackle the Hall Tax.”

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by punishing those who work hard and save, voters understood that the tax didn’t just impact the wealthy.

With the copy and video created, the rest of the project, which included digital ads, social media pages, and a micro-site, could move forward.

The Beacon Center’s team of experts constantly monitored the data that poured in from the video views, email results, and social media campaigns. This dedication to stay on top of audience engagement allowed them to continuously hone their outreach methods to focus their message to their target audience.

As video views climbed into the hundreds of thousands, the team used a technique called geo-fencing to send 15-, 45-, and 120-second videos to anyone located inside the state’s capitol. These videos, which launched when views reached 250,000, 500,000, and 750,000, began with an update on how many people had watched the video.

This tactic essentially allowed constituents to make their voices heard inside the halls of the legislature. The groundswell of viewership and the subsequent petition signers and emails to the state’s legislators proved impossible for Tennessee’s elected officials to ignore. In fact, as the number of people who viewed the video grew, the number of legislators who clicked on the ad grew with it.

With the public engaged, the team looked to social media advertising data to identify those most likely to be engaged

in the issue. Through email and social campaigns, those individuals were asked to take action by signing petitions and emailing legislators, tasks that could be accomplished easily from the campaign’s microsite.

Within just a few weeks, a petition to repeal the Hall Tax garnered 4,500 signatures. When the bill to repeal the Hall Tax went to the state general assembly, the campaign asked the petition’s signatories to email their legislators – resulting in an astounding 75,000 total emails sent to Tennessee’s elected officials urging the repeal of the Hall Tax.

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OUTCOMES

POLITICALOn the last days of the legislative

session, Rep. Billy Spivey filed an amendment that made the legislature’s intent to phase out the Hall Tax a statuary commitment. Under the leadership of Sen. Mark Green and Rep. Charles Sargent, lawmakers enacted a bill to phase out the Hall Tax over six years.

The bill cuts the Hall Tax rate from 6 percent to 5 percent for tax year 2016. The bill states it is the “legislative intent” that the tax rate be reduced by 1 percent annually starting next year. It eliminates the tax entirely for 2022, regardless of whether the annual reductions occur.

SOCIALRepealing the Hall Tax will return

more than $300 million annually to taxpayers. While this lost revenue will make little impact on the state budget — the Hall Tax accounts for less than 2 percent of state revenue — it will make a huge difference in the lives of the Tennesseans who currently pay the tax, more than half of whom make less than $75,000 a year. Freeing them of the burden imposed by the Hall Tax represents a huge weight off their shoulders.

In addition, as with Tennessee’s estate tax (a campaign also spearheaded by the Beacon Center), the Hall Tax has the unintended consequence of driving wealthier residents and retirees out of the state or discouraging them from moving there.

Polling at the end of the project showed that support for repealing the Hall Tax rose from 42 percent to 58 percent over the course of the six-week campaign.

With the elimination of the Hall Tax, Tennessee will become a haven for hardworking, job-creating residents. Many of those moving here will purchase homes, vehicles, and other items that require the payment of property and sales taxes. As a result, both the state and local governments will benefit from this repeal and the increased tax revenue it will bring.

ORGANIZATIONALThe Beacon Center and its team of

experts produced the following items for this campaign:

� Website: Responsive, goal-optimized micro-site

� Content: Banner ads; optimized social media ads; 15-, 45-, and 120-second videos

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� Facebook Targeted Advertising and Custom Audiences: Custom pixel tracking, email list matching, lookalike audiences, and retargeting

� Banner ads and video content served to pre-screened audiences in targeted state house and senate districts

� Geo-Fencing: Banner ads and video content served only to mobile phones within the state capitol

� Google Analytics: Track and report website traffic

� Email Marketing: Weekly emails to petition signors

Through the campaign, the Beacon Center was able to grow its base of supporters. The organization gathered close to 80,000 email addresses and can now reach out to them periodically regarding other tax issues it is fighting. Engagement on Facebook has also grown as a result.

At the beginning of the campaign, some donors didn’t believe this repeal could be accomplished and therefore did not want to contribute to the crusade. With the campaign over and the Hall Tax eliminated, many of those donors have since contributed to the organization.

Owen attributes the organization’s growth to the win, but also to the perception that they aren’t just “…some wonky think tank. We know how to get things done, and now we’ve proven that.”

OBSTACLES & FACTORS FOR SUCCESS

Factor for Success: COMMUNICATION TACTICS & MESSAGING

The Beacon Center’s innovative strategy of Educate > Engage > Reform was a major factor for success in repealing the Hall Tax. The organization evolved its communications strategies to speak to the public instead of just elected officials.

Take Away

� The Beacon Center was highlighted in The Wall Street Journal’s article “The Spoils of the Republican State Conquest,” which attributes the success of state issue campaigns waged and won by Republicans in 2016 to campaign strategies that emphasized communicating with average Americans.

� An article in the American Spectator lists the repeal of the Hall Tax as one of its top five “most exciting policy victories” for the little guy in 2016.

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Factor for Success: INVESTING IN POLLING RESEARCH

The Beacon Center invested 15 percent of its total campaign budget into market research. This included polling Tennessee residents at the beginning and end of the campaign and two focus group sessions, which helped the team determine the best video created for their target audience.

Take Away

� Understanding how your target audience perceives your messaging and communications tactics is an essential step to ensuring if it will resonate with them, thereby encouraging action. Polling and focus groups are vitals ways to learn this.

Factor for Success: LEVERAGING REPUBLICAN CONTROL OF THE GOVERNOR’S MANSION & BOTH HOUSES OF THE LEGISLATURE

Since entering office in 2011, Tennessee’s governor has led a fiscally responsible state, balancing the state budget while returning money back to taxpayers’ pockets. The total tax cuts during his tenure are nearing $2 billion. The most meaningful cuts have come from a full repeal of the state’s death and gift taxes, as well as a significant reduction in the sales tax on food.

Take Away

� Picking the right fight at the right time is vital, but it does not guarantee a win.

Obstacle: TENNESSEE’S REPUBLICAN GOVERNOR Tennessee’s Governor, Bill Haslam, was named “Richest politician in America,” by Forbes in 2015. He repeatedly stated that he would not consider signing any legislation that could be misconstrued as a tax break for the wealthy. During the legislative discussion, Haslam supported reducing the tax rate but warned about the potential impact on the state if it eliminated the Hall Tax. He argued that future reductions and repeal should be left to future legislatures and governors, who would make decisions based on the state’s needs at the time.

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Take Away

� The groundswell of support that the Beacon Center was able to generate made it politically unwise for Tennessee’s governor or any other elected official to ignore.

Obstacle: OPPOSITION MESSAGING FROM LEFTIST GROUPS & MAYORS

The Beacon Center faced resistance from a powerful cadre of mayors whose towns benefited from revenue collected through the Hall Tax. The reduction and ultimate repeal meant a loss in revenue for local governments — particularly the largest cities and the more affluent suburban municipalities — because 37.5 percent of every Hall Tax dollar collected flows to the town or city where the taxpayer lives, or to the county if the taxpayer lives in an unincorporated area. This amounts to a total revenue of $303.4 million in fiscal year 2015 — $197.9 million for the state and $105.5 million for cities and counties.

Take Away

� The Beacon Center countered this somewhat fear-provoking messaging from the opposition with the truth, which is that while 37.5 percent of the tax money generated goes back to the town, city or county, this only accounts for 10 percent or less of those local governments’ total budgets.

Obstacle: PUBLIC LACK OF AWARENESS OR INCORRECT PERCEPTION

After years of trying various strategies to educate the public about the Hall Tax, the Beacon Center’s own polls found that only 17 percent of Tennesseans even knew about that tax. When they did know about it, they misunderstood it as something only a few, very wealthy Tennesseans must pay. This public misperception meant that even lawmakers who agreed with its repeal felt unable to publicly oppose the tax.

Take Away

� A new narrative presented the Hall Tax as “not in the Tennessee Way” and explained that it impacted all Tennesseans by punishing those who work hard and save, and by making the state less attractive for businesses and families.

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Obstacle: TIGHT TIMEFRAME

Deciding in November 2015 to make the elimination of the Hall Tax a priority only gave the Beacon Center only three months to assemble an expert team, launch the campaign, and win.

Take Away

� The Beacon Center made up for the lack of a massive organizational staff typically needed to succeed in such a short timeframe by hiring outside experts to develop and run the key elements of the campaign.

� Daily and weekly conference calls helped to keep everyone on track.

Obstacle: NARROW IMPACT SCALE

According to the Tennessee State Department of Revenue, around 200,000 households – or less than 10 percent of all household in the state – filed Hall Tax income tax returns in 2014, with an average tax bill of $1,446 and a median bill of $266. Additionally, in recent years, lawmakers enacted provisions that spared many retirees and middle-class earners from paying the tax.

Take Away

� The Beacon Center counteracted this messaging with its narrative that taking investment income of any amount and from anyone was not the Tennessee way of rewarding hard work, savings, and frugal planning.

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FOR FURTHER READING:

� Justin Owen. April 28, 2016. “Tennessee Becomes Only Second State Ever to Eliminate Its Income Tax.” The Daily Caller. http://dailycaller.com/2016/04/28/tennessee-becomes-only-second-state-ever-to-eliminate-its-income-tax/

� Richard Locker. May 20, 2016. The Tennessean. http://www.tennessean.com/story/news/politics/2016/05/20/gov-bill-haslam-signs-hall-income-tax-cut-repeal-into-law/84044810/

� Hani Sarji. June 30, 2012. Forbes. https://www.forbes.com/sites/hanisarji/2012/06/30/tennessee-woos-wealthy-retirees-by-repealing-inheritance-and-gift-taxes-2/#740c5ba32308

� Justin Owen. April 22, 2016. The Beacon Center of Tennessee. https://www.beacontn.org/beacon-statement-on-elimination-of-the-hall-tax/

� Emergent Order. http://emergentorder.com/work/end-the-hall-tax

� The Zoldak Agency. http://www.thezoldakagency.com/blog/2017/1/13/the-zoldak-agency-and-the-hall-tax-client-campaign-inspires

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