Today’s meeting of the minds about a special panel’s tax-reform proposals was closed to the press. But afterward I spoke with several participants, including Grover Norquist of Americans for Tax Reform, who has previously called the reform package a tax hike and who came to Atlanta to hear members of said special panel argue otherwise.
First, Norquist defended his determination that the reform package as written, with the revenue estimates it included, was a tax hike. He said A.D. Frazier, who chaired the Special Council on Tax Reform and Fairness for Georgians, told him that while producing a “revenue neutral” reform package was the intent of the council, “they were focused on the principles of tax reform but not on the totals” of revenue estimates. To which Norquist said, “Well, I’m kinda concerned about the totals.”
Frazier told me this afternoon that the council may not have made itself clear enough that revenue neutrality was a key objective of the reforms. He said he will ask the other council members to approve a statement to add to their report so that it is clearer.
To wit: As the reforms are implemented, cut income taxes as far as needed to prevent a tax hike — even if that means going below the flat, 4 percent marginal rate the council recommended.
“You gotta know that what you’re trying to change to is going to take before you put the cuts in,” Frazier said. “Because we don’t know. They’re estimates, and notoriously bad in some cases in the past, but estimates nonetheless. And once you see that the numbers are going to be what you said, then whack the income taxes fast, because that’s what’s going to drive the growth.”
The income-tax cuts were slated to come in steps: down to 5 percent in year one, 4.5 percent in year two, and finally 4 percent in year three. With state revenues projected to rise in the coming fiscal year (which begins July 1), it may be that the cuts could come faster. Or that they could go farther, to 3 percent or lower.
Norquist said this outcome is “where I thought we’d be going when I threw up the flare” about the package representing a tax hike.
“We didn’t think we had a war on. But when you start with a project [like the special council's], the ball gets rolling….We didn’t want momentum to build up for some unnamed, unenumerated, unclear list [of tax reforms] without a guardrail saying there won’t be a tax increase.”
One caveat is that there may be a temporary tax increase as tax cuts are phased in. Short of trying to match up specific income-tax cuts with certain sales-tax increases to try to prevent a one- or two-year spike — which strikes me as near imp0ssible to pull off — I don’t know how you avoid that.
If the state, like the federal government, could run a small, temporary deficit in order to err on the side of cutting taxes first, I’d recommend doing that. But it can’t. Legislators could maintain the spending cuts of the last few years so that tax cuts could come faster, but I wouldn’t bet on their doing that.
And will the council’s proposals even get any traction in the Legislature? The sense I’ve gotten during the session so far is one of hesitation. If Norquist were to change his mind, and tell legislators they wouldn’t be violating their anti-tax pledges by voting for the reforms, that might change. Then again, Gov. Nathan Deal has given the plan from the council, a holdover from his predecessor, a lukewarm reception at best.
All that to say, stay tuned. But things do look more promising now than they did a couple of weeks ago.
– By Kyle Wingfield
Find me on Facebook