Concerns about a Georgia tax hike may be assuaged soon

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.

It appears that the concerns that Norquist voicedas did I, a couple of weeks ago — may be resolved in relatively short order.

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

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16 comments Add your comment

CJ

January 28th, 2011
4:39 pm

A.D. Frazier: “…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.

Interesting. Because that seems to be the exact opposite of what Frazier had previously indicated.

Per Jay Bookman, “Council chairman A.D. Frazier made it clear that he didn’t buy that argument [that Georgia’s current tax structure is an obstacle to economic recovery], 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.”

Frazier was right the first time. http://blogs.ajc.com/jay-bookman-blog/2011/01/11/in-legislative-hands-tax-reform-proposal-poses-a-lot-of-dangers/

It bears repeating that, unknowingly acting against their own best interests, most Georgian’s have decided that they want to move from a progressive tax system to a regressive tax system in which the largest burden of taxation is placed on the poor and middle class. Our “business-friendly” state government has created among the fastest declining home values in the country and among the highest unemployment rates in the country. Now, adding insult to injury, this so-called tax reform is a slow-motion disaster in waiting.

jconservative

January 28th, 2011
4:46 pm

“…the principles of tax reform…”

Gee, I didn’t even know tax reforms had principles. Dumb a*s me!

“One caveat is that there may be a temporary tax increase as tax cuts are phased in.”

I never did like caveats, they always give me indigestion. They just don’t agree with me.

So I guess I vote NO on the whole idea. We need a new commission!

Kyle Wingfield

January 28th, 2011
4:56 pm

I can’t speak to what Frazier has told other people. What I can say is that he told me today, as I’ve heard him say before, that the *corporate* income tax rate was not *the most* important factor. That is not the same thing as saying that both the tax structure as a whole and the corporate income tax are *unimportant.*

A few additional quotes from my conversation with Frazier today:

“What we found, when we went around the state…everybody said the personal income tax makes more difference in their choice making than the corporate tax does.”

“Public education…; infrastructure; quality of life; inventory taxes, which we couldn’t get rid of but we tried…; taxes on fuel, or energy inputs in industry and agriculture…; all of those things were much more important than corporate income tax.”

On why he favors keeping parity between personal and corporate income tax rates: “The reason for that is, don’t let taxes cause someone to make an otherwise uneconomic decision. … The rates should be the same so that if somebody wants to be a c-corporation, be a c-corporation. If they want to be an s-corporation, be an s-corporation.”

And after that, you’re back to your insulting, unfounded talking points about Georgians who vote differently than you having no idea what it is they’re voting for.

Michael H. Smith

January 28th, 2011
5:31 pm

And after that, you’re back to your insulting, unfounded talking points about Georgians who vote differently than you having no idea what it is they’re voting for.

AGREE!

As importance goes:

Taxes on fuel, or energy inputs in industry and other business taxes impact my place of employment. The Democrats “Cap and Tax” so-called energy legislation, meant to subsidies unprofitable alternative energy sources, will have a very negative affect on business. Taxes on small business will hamper future extirpation, including newly created jobs as well.

Can’t say what good the State Republicans can do but certainly they can’t do worse than what the National Democrats have in mind fro the economy:Which is to further grow the government – that is the BIG SOCIALIST GUB’MENT!

Michael H. Smith

January 28th, 2011
5:34 pm

Oops typo “future extirpation” should have been future expansion

CJ

January 28th, 2011
6:08 pm

And after that, you’re back to your insulting, unfounded talking points about Georgians who vote differently than you having no idea what it is they’re voting for.

Kyle,

I don’t know what “unfounded” talking points you’re referring to, but yes, it’s true. I follow this stuff pretty closely, so when voters vote differently than me, then generally speaking, I believe that I’m right and they’re wrong (hence the word, “unknowingly”). That shouldn’t surprise anybody, and of course, it’s not a belief limited to those of us on on the left side of the political spectrum.

Of course, blaming politicians for our woes is make sense. But in a representative democracy, I think it’s also reasonable to blame the voters who put them there (as well as those who help put them there by not voting at all). Yeah, I’m pretty frustrated with how most of my fellow Georgians are voting these days.

Kyle Wingfield

January 28th, 2011
6:17 pm

What is unfounded, CJ, is your belief that a) they are ignorant about their own interests and/or b) that you know what their interests are better than they do. What is far more likely is that they have different priorities, or a different way of looking at the world and evaluating their needs, than you do.

They may be unknowingly voting against *your* interests. But then, you may be unknowingly voting against theirs.

I have probably voted differently than you in nearly every election we’ve both participated in. But I would never have the chutzpah to suggest you didn’t know what you were doing in casting your vote. That’s where the “insulting” comes in.

CJ

January 28th, 2011
6:31 pm

A.D. Frazier: “…don’t let taxes cause someone to make an otherwise uneconomic decision. … The rates should be the same so that if somebody wants to be a c-corporation, be a c-corporation. If they want to be an s-corporation, be an s-corporation.

I’ve mentioned this before, but again, there are many advantages to forming a C Corporation over an S Corporation (e.g., more flexibility with capital accumulation, more flexibility with business activities which are allowed, greater deductibility of benefits). Imagine if Frazier had said “Don’t let airplane ticket prices cause someone to make an otherwise uneconomic decision. The rates should be the same so that if somebody wants to sit in first class, sit in first class. If they want to sit in coach, sit in coach.” We’d all be rolling our eyes. But that’s exactly what he’s saying here with regard to the costs associated with different forms of incorporating.

Big business seeks the advantages associated with incorporating as a C Corp without the financial obligations that come with it, and A.D. Frazier is their spokesperson.

CJ

January 28th, 2011
6:55 pm

You misunderstand me, Kyle. I don’t believe that a) Georgian’s are ignorant about their own interests and/or b) that I know what their interests are better than they do. Of course, they know what their own interests are.

But unless growing the poverty rate, shrinking the middle class, and enriching the rich is their main objective, then I believe that many Georgians unwittingly vote against those interests when, for example, they support regressive sales taxes over progressive income taxes by voting for the politicians who will institute changes to that effect.

Lugnut

January 28th, 2011
7:06 pm

Kyle, well stated. The liberal mind presumes it makes the superior argument at all times, and at no time wishes to subject the argument to analysis. More spending equals “investment”. Deficits as far as the eye can see are necessary to “save money”. Government spending which takes from one and awards another in at best a zero-sum transaction is “stimulus”. Claiming an entire highway lane for so-called “Lexus Lanes” will reduce congestion. The death penalty is always to be opposed. Abortion should be available on every corner. Criminals should be offered an alternative to incarceration. Law abiding folks should be denied the means to defend themselves agianst criminals.

It just takes an Gordian knot of a mind to actually espouse such positions in a serious manner. That the liberal does so on a regular basis is indicative of a mental disorder.

hg

January 28th, 2011
7:18 pm

just like “tax cuts” means “service cuts” …

Still waiting to hear which services are going to be cut or which fees are going to be raised in order to “cut taxes”.

killerj

January 28th, 2011
7:55 pm

Two years running eh? Do nothing just decides to do something when he realizes that the majority is against?Like that was not planned? What do you say? Tax cuts around the world now with word global economy?Come on people,this was pre meditated,this Gov is not to be trusted,Prepare for the worst yet to come as they manipulate the way of life,you sacrifice,they gain.Go Tea Party.

The Snark

January 28th, 2011
10:28 pm

Eight straight years of cutting and facing a billion-dollar-plus deficit, and being “revenue neutral” is the litmus test for any tax reform? Glad to know that Grover Norquist is setting Georgia’s priorities for us. Would hate to think that our leaders actually believe that self-government has any responsibilities.

Liberal Mind

January 29th, 2011
8:15 am

Claiming an entire highway lane for so-called “Lexus Lanes” will reduce congestion.

Don’t blame that one on me. That crapola came from a GOP Governor, a GOP administration apointee, and a GOP majority-led legislature. You guys own that one. When it proves true, it’s the Conservative Mind to blame not me.

Jack

January 29th, 2011
8:36 am

What is happening is exactly what I predicted would happen relating to taxes and republicans.

Republicans get elected by, among other things, always promising not to raise taxes and to cut spending.

Republicans, including republican newspaper writers, then try to re-define what raising taxes means as they go about raising taxes. They re-define cutting spending by cutting the RATE OF INCREASE in spending, not actually cutting spending and they have no courage in doing what must be done – cut the bloated Defense Department budget (much different from cutting spending on the battle field) and scaling back Social Security/Medicare spending. I am going to puke if I have to hear one more republican politician like Eric Cantor say, “we are going to have to have a healthy dialogue regarding Social Security”. If he means cutting spending, say it. If not, there is no such thing as a “healthy dialogue”.

If you are more of a Tea Party conservative than a republican, you HAVE to get over this love affair with republicans. I am more than willing to possibly lose the White House for four more years (which is more than likely going to happen anyway) and even lose republican seats in Congress than to continue to drink the “kool aid” of republican empty promises.

If we get behind a third party movement led by someone like Palin or Bachmann, yes – that will temporarily benefit the democrats but it is the only thing that will get us true fiscal conservative leadership in America. I am certain than within a couple of election cycles, the republican party would be the “third party” in America and would eventually be absorbed by a former third party of fiscal conservations.

Come on Kyle – are you with us or are you just another republican party newspaper writer?

saywhat?

January 30th, 2011
12:55 pm

Kyle, if 50% or more of Georgians (i.e. lower and middle class), see their overall tax burden go up in the form of sales taxes on food, while a minority of Georgians see their tax burden go down, do you think the first group will find this to be in “their own best interest”? Even when they realize that they will receive less service from the state they just paid more money too?

Remember- this plan is “revenue neutral”, meaning if the people at the top will be paying less, the rest of Georgia will be paying more. It is “insulting” to point this out?