The warning had an ominous ring to it.
It was a month too early for Halloween, but here was someone from the nation’s capital, telling an Atlanta audience about apparitions in the halls of Congress.
“Washington is being haunted by the specter,” said the Heritage Foundation’s William Beach, “of tax reform.”
If that doesn’t give you the willies, consider that any changes the feds make will have an echo effect in Georgia. For simplicity’s sake — mark this occasion, because you won’t often read “simplicity” and “tax laws” in the same sentence — our tax laws incorporate many federal rules.
So, whatever Washington does in the way of tax reform will hit you once on your federal taxes, and then again on what you pay the state. If you’re a Georgia lawmaker dithering about reforming the state’s tax code, Beach suggested, that prospect really ought to scare you straight.
“If you do nothing today, absolutely nothing, in 2013 you will get tax reform,” Beach said Sept. 30 at the Georgia Public Policy Foundation’s annual Legislative Policy Briefing. “It will come from the federal government. And you will be able to do nothing about it, unless you decouple from the federal tax system.”
Beach said that in 20 years of analyzing tax bills — now there’s a task you can be thankful someone else performs — he has “never been busier” with proposals to vet with his economic models. The general drift is in the direction of flatter, broader and simpler. That means fewer deductions and exemptions, paving the way for lower rates.
And that, in turn, means changes are in store for Georgia’s own tax structure.
By my count, the part of Georgia law that determines a person’s taxable income contains, by itself, three dozen references to federal tax law. The way the state treats your dependent child’s unearned income, deductions for school teachers and a whole lot in between hinges in some way on what the feds do.
Exactly what they’ll do remains to be seen. Beach said last month that the plan most likely to win favor is the one championed by Sens. Ron Wyden, D-Ore., and Dan Coats, R-Ind. But that was before Herman Cain, with his 9-9-9 plan, shot to the top of a couple of national GOP primary polls.
In either case, large chunks of the Internal Revenue Code could be erased at once.
Some of Georgia’s legislative leaders, including Speaker David Ralston, say tax reform tops the agenda for next year’s session. But Ralston isn’t yet committing publicly to a particular version of reform, and other lawmakers say they’re unsure which changes stand a real chance of becoming law.
There seems to be an inclination to keep the changes small. Here’s a suggestion: Go big.
Shoot for the fewest number of exemptions and lowest rates possible — both for individuals and corporations. Justify the ones that are worth keeping on their own merits, as they relate to Georgia. (There shouldn’t be many that pass muster.)
Then, when Washington does whatever it’s going to do — or if reform efforts end up losing steam — we will have done what makes sense for us. But let’s not assume we have time to waste.
“If you know your neighbor has loaded the gun and is coming after you,” Beach said, “you don’t just sit there and welcome his visit. You prepare yourself. Prepare yourself for tax reform in the same way.”
– By Kyle Wingfield