On the final day of the 2013 legislative session, a group of Republican legislators introduced “The Georgia Fair Taxation Act.” By doing so, they set the stage for what may prove to be the most important legislative battle of next year’s session, or potentially the decade.
“This bill is the beginning of the discussion to eliminate the income tax in the state of Georgia,” state Rep. Tom Kirby of Loganville said in announcing the legislation. He also said that he has already conferred with and agreed to work with Senate President Pro Tem David Shafer, who has proposed similar legislation on the Senate side.
To offset the revenue lost by eliminating both the personal and corporate income tax in Georgia, Kirby says it would be necessary to increase the state sales tax by three to 4.8 percentage points. In metro Atlanta, that would produce a state and local sales tax of roughly 11 or 12 percent. And as we’ll see, the actual number would be higher still.
In addition, the reach of the state sales tax would be expanded considerably, perhaps to food and other items. The national version of the so-called “FairTax,”
Such a proposal creates many problems, but here are three of the largest:
1.) The change would mean major tax increases for the vast majority of Georgians, and major tax reductions for the wealthy and corporations. There’s no dispute among economists — a revenue system heavily reliant on sales taxes hits the poor and middle class hard while providing large tax breaks for the wealthy. Merely eliminating the corporate income tax would shift $735 million in taxes onto consumers.
2.) When asked about that massive shift in tax burden this week, Kirby brushed it aside, asserting that greater prosperity would more than compenasate for higher taxes on the non-wealthy. “We bring this piece of the puzzle, and we can see an exponential increase in the number of businesses looking at Georgia,” he predicted.
The problem is, there is no evidence to support that claim. For example, in announcing the legislation, Kirby repeatedly cited competition from Tennessee and Florida, pointing out that those neighboring states have no income taxes. Given the economic miracles that such a system is said to produce, those states must be booming, right? Wrong. Per capita GDP in both Tennessee and Florida is well below the national average, and below that of Georgia as well.
3.) The sales tax increase needed to keep the system revenue neutral will be considerably higher than the estimate of 3 to 4.8 points. That low-end estimate is derived through “dynamic economic modeling”, which is a fancy way of saying “just making stuff up.” “Dynamic modeling” assumes that the new tax system creates a burst of economic growth, which in turn generates a lot of new revenue. It is pure conjecture.
If that magic revenue doesn’t appear, as it probably won’t, Georgia’s battered budget would suffer even more whacks with a meat ax.
The scary thing about these proposals is that they could actually pass. The Senate’s top leader has embraced the concept. As a congressman, Gov. Nathan Deal was a strong supporter of the FairTax at the national level. And now Republican members of the House are championing the move as well. Among the co-sponsors of Kirby’s bill are Ed Lindsey, the House majority whip, and Donna Sheldon, chair of the House Republican Caucus.
“It is tough to win a Republican primary in the state of Georgia and be against the FairTax,” as state Rep. Buzz Brockway, R- Lawrenceville, pointed out last week. “So I think on the Republican side there is broad support for the FairTax model.”
He’s probably right.