Handing a major rewrite of the state’s tax code to a novice governor and a rudderless state Senate isn’t exactly great timing, especially since state leaders already have their hands full trying to deal with a budget shortfall of as much as $2 billion.
But, hey, things could be worse. If the volatile Glenn Richardson were still serving as speaker of the House, conditions for fiscal disaster would be pretty much perfect. His replacement as speaker, the more mature and stable David Ralston, has already made it clear that he intends to move slowly and deliberately on tax reform, and that’s a relief.
There’s no reason for haste.
Three years ago, you might recall, Richardson announced his own proposed rewrite of the tax code, which he dubbed the GREAT Plan. That proposal was an awful mishmash of supposedly conservative proposals, with no internal logic of its own, and eventually it collapsed under its own muddled contradictions.
In contrast, the tax reform plan announced last week at least holds together. The plan was drafted by an 11-member council created by the state Legislature, and given the political parameters in which it was forced to operate, the panel delivered a pretty sound set of recommendations.
However, those political parameters proved a serious handicap. The panel was created by state leaders operating under the popular but factually flawed thesis that Georgia’s current tax structure is an obstacle to economic recovery. (That same thesis, by the way, also drove Richardson’s badly flawed “reform” effort.)
Council chairman A.D. Frazier made it clear that he didn’t buy that argument, noting repeatedly that Georgia already has one of the lowest tax burdens in the country and one of its friendliest business climates. As he also noted, there’s very little evidence that altering a state’s tax structure stirs economic growth.
Nonetheless, the panel dutifully recommended a series of steps that will reduce the state tax burden on business and income and place it instead on spending by lower- and middle-income consumers. The most controversial provision calls for restoring the state’s 4 percent sales tax on food, a change that would disproportionately affect Georgians already struggling to make ends meet.
On the positive side, the panel proposes to eliminate almost all sales tax and income tax exemptions, which would allow the state to lower its tax rates while still generating sufficient income. (In further testament to the political power of utilities in this state, the tax exemption on energy used in manufacturing was retained.)
If enacted as proposed, the panel’s plan also would provide a boost in state revenues for a couple of years, which would help ease the otherwise Draconian impact on education and other important state programs. Over time, as the plan takes full effect, it would return to being revenue neutral.
Under the law creating the council, its recommendations now go to a joint House-Senate committee, which is supposed to put the plan into a legislative package. That package would then be submitted to each chamber for a vote, with no amendments permitted.
It’s hard to envision that happening, however. In fact, there’s a good chance the panel’s recommendations will share the fate of recommendations by countless previous blue-ribbon panels, which is to be ignored altogether.
And that may be the best outcome we can expect. Once legislative leaders start trying to pick and choose those things they like from the council’s recommendations, while ditching those things they don’t like or that don’t match their preconceptions, the results aren’t likely to be pretty.