Republicans in the state Legislature are trying — so far without much success — to “reform” our state tax code, supposedly to make the state more attractive to business.
If that thought frightens you … well, it should.
The Special Council on Tax Reform and Fairness for Georgians, the commission created by the Legislature last year to study the matter, made it quite clear that changes in the state tax code would not bring jobs. But it nonetheless proposed a package of changes it believed would help modernize the state’s tax structure.
Legislative leaders, in their infinite wisdom, basically tossed the council’s work aside and decided to use its recommendations as a menu from which to pick reforms it preferred. The package now on the table would eliminate state income tax deductions while lowering the income tax rate from 6 percent to 4.5 percent, in effect moving Georgia toward a so-called flat tax.
In addition, it would start levying a sales tax on what are called “casual” auto sales, meaning the sale of used cars between private individuals. The sales tax would also be applied for the first time to auto repairs and telecommunications, such as cell phone and satellite TV bills.
The bill was lauded as revenue neutral, and it probably is. Lowering the income tax rate from 6 percent to 4.5 percent reduces state revenue. However, that loss would be offset by eliminating deductions and broadening the sales tax.
However, state Rep. Stacey Abrams, head of the House Democratic Caucus, was curious about how those changes might affect Georgians in various income brackets, and asked analysts at the Georgia State’s Fiscal Research Center to provide some numbers.
The chart below — which accounts only for the proposed changes to the state income tax, excluding sales tax changes — demonstrates what the GSU experts found. (It includes Georgia taxpayers who itemized deductions on their federal 1040s).
Those making less than $20,000 pay lower taxes — they don’t tend to itemize, so eliminating deductions doesn’t affect them. Those making between $20,000 and $180,000, who do tend to itemize, would see significant tax increases.
And those who make more than $180,000 would see significant tax cuts. For those with incomes of more than $500,000, the tax cuts would average 16 percent.
Again, the chart above addresses only the impact of proposed changes in the income tax. When you add the proposed changes in the sales tax, the impact on Georgia’s middle and working classes becomes even more profound. The working and middle classes, for example, tend to buy and sell used cars from each other far more often than do Georgians with higher incomes. So they’re going to pay more taxes.
As Abrams points out, a new sales tax on auto repairs would also push your auto insurance rates higher. Approximately 40 percent of auto-repair work in the state is paid for by insurance companies, and they would have to pay the new sales tax on that work as well. Overall, Georgia insurers would pay an estimated $39 million in state sales tax on auto repairs, which they would pass along to their customers.
The tax reform package had been hammered out behind closed doors, and early this week GOP legislative leaders were poised to force its passage into law — allowing no amendments — until these numbers emerged. Now they’ve been forced to again retreat into secrecy — shutting down the Legislature in the meantime — while they figure out their next move. Their efforts have been greatly complicated by an ongoing leadership feud among Republicans in the Senate, who earlier this year stripped Lt. Gov. Casey Cagle of most of his powers but now appear to be having second thoughts.
If all that sounds like a mess, you and I and most of the citizens in Georgia literally don’t know the half of it, because most of the squabbling and backstabbing is occurring in private caucus meetings and leadership chambers. All we get to see is the blood leaking out from beneath the door.
– Jay Bookman