UPDATE at 11:55 a.m.: I already mentioned this in the comments, but wanted to put it at the top for those just tuning in:
First, it’s impossible right now to know what’s in the bill. The legislators doing the rewriting are falling into the same pattern we saw in Washington during the ObamaCare debate: keep rewriting the bill to pick up reluctant legislators, and ask the rest of us to trust us that we’ll like it when we find out what’s in it. Until now, there was at least a minimum amount of transparency and deliberation involved. No more.
Second, there were at least sound economic arguments for the differences between the most recent draft of the bill and the original, broader proposal made by the special council. Now, who knows? But it would appear that the new changes are being made to collect “yes” votes, and not necessarily with good economic principles in mind.
All that to say, my reluctant thumbs-up on the earlier, “unexciting, lowest-common-denominator” bill is now a disappointed thumbs-down. Given today’s developments, it seems to me better to hold off, be deliberate and thorough, and revisit the bill next year.
ORIGINAL POST (with original headline “Tax-reform bill is cautious, but better than nothing”):
The state House could vote as soon as today on tax-reform lite — an abridged version of the overhaul proposed earlier this year by a special council of economists and businesspeople. Those broader changes began as potentially significant tax cuts masquerading as a $1 billion tax hike, and have wound up as a lowest-common-denominator bill that hardly anyone is actually excited about.
That said, it’s an unexciting, lowest-common-denominator bill that the Legislature ought to pass the governor ought to sign. Here’s why.
Raising taxes in a slow-to-recover economy is a bad idea, but cutting taxes meaningfully in a slow-to-recover economy has proved to be more than our legislators can bear. If you want to know what they really mean when they talk about smaller government, take a look around — because it has become quite apparent that this is as far as they intend to go in cutting.
They’re not going to cut any farther than revenues require, and the state Constitution mandates that they balance the budget each year, so reducing revenues even further seems to be out of the question.
That has handcuffed the tax-reform plan. The original plan, as it was presented publicly, amounted to an apparent tax hike because the plan described cutting income taxes only to a flat rate of 4 percent (from the current progressive rate schedule that tops out at 6 percent). When some of us hollered about that, members of the special council said they’d never intended for 4 percent to be a floor, but a ceiling. After some further calculations, it was suggested that the rate could drop as low as 3 percent within a few years — eliminating the bulk of the discrepancy, in the minds of highly mobile, job-creating entrepreneurs whom the special council members consulted, between Georgia and no-income-tax states such as Florida and Tennessee.
And the loss of some deductions, raising some Georgians’ taxable income, would be easier to swallow if the rate fell to 3 percent. However, the less ambitious tax plan actually presented to the full Legislature stops at 4.5 percent, because some of the offsetting tax increases have been abandoned.
That leads me to the other key thing that has hampered the reform plan. Some people who say they favor a shift in the tax burden from income to consumption have, surprisingly, balked at doing so the way the special council proposed.
In some cases, they have a point: For instance, legal services in many cases are highly mobile, and it would be simple for clients to avoid paying taxes by requesting that a large firm’s office in, say, Charlotte do the work rather than its Atlanta office. Should that happen often enough, one doesn’t have to go out on too much of a limb to predict that Georgia would lose a lot of legal jobs. Lawyer jokes aside, that wouldn’t be good at all for the state’s economy.
So, there are some legitimate reasons to be gun-shy about some of the proposed changes. But even accounting for those, this remains tax reform lite.
Still, it’s better than nothing and a first step toward further cuts in the near future. The fact that the plan doesn’t include a cut in the corporate income-tax rate — a central campaign promise of Gov. Nathan Deal — suggests strongly that we’ll see lawmakers take another whack at the tax code sometime in the next three years.
In the meantime, I say we pocket the small gains on the table now — and go for more as soon as possible.
– By Kyle Wingfield