We saw this movie last year: Georgia’s legislative leaders wait until late in the session to try to make changes to the tax code, even as questions remain about elements of the package, their projected impact on the state budget, and the assumptions underlying that projected impact. Only, this year the action is happening later, after less public discussion, with less time to review the projections. The House reportedly will vote on the bill later today, and the Senate before the end of the week.
It was a bad idea last year, and it’s a bad idea this year.
Despite protests to the contrary by legislators, this year’s tax bill — in no way can it be considered a real tax “reform,” much less a “comprehensive” one — does not comprise only changes that have been thoroughly vetted in public. The “E-Fairness” element, a.k.a. the “Amazon tax,” was not part of the mix last year. It’s a tax that, in most of the states in which it’s been passed to date, has succeeding less in “leveling the playing field” between online retailers and brick-and-mortar stores than in triggering lawsuits.
Other elements of the proposal incorporate aspects of earlier plans without explanations for why they evolved the way they did. For instance: Eliminating certain exemptions from the sales tax makes sense as part of an effort to broaden the base and lower rates (on either the sales tax or the income tax). But why eliminate only the exemption for the film industry? And why add a new exemption for building materials used in some — not all — construction projects?
Reducing the “marriage penalty” in the individual income tax is a worthy goal — but more worthy than trying to reduce the income tax rate for everyone? Lowering that rate was the central component of last year’s attempt at tax reform; this year, it’s missing in action. Is reducing the marriage penalty, with a net revenue reduction of $362.6 million during the next three years, really equivalent to changing the way the state taxes automobiles, with a net revenue increase to state and local governments of $365 million during those years? Is that latter number even correct, given that the state is pledging to compensate local governments for their revenue losses? (The state stands to gain revenue from the car-tax change, while locals lose money.)
And if the change in the car tax — replacing sales tax and the annual ad valorem tax (a.k.a. the “birthday tax”) with a one-time title tax — is really such a good deal for taxpayers, why does it result in a net increase in revenue?
There are two elements of the package that ought to be passed this year: The exemption for sales tax on energy used by manufacturers, and the modernization of the exemption for sales tax on certain purchases by the agriculture industry. The former is a tax that surrounding states do not charge, and thus it inhibits economic growth in Georgia. The latter is a virtually revenue-neutral overhaul of a messy portion of the tax code that developed ad hoc over the past several decades (for example, if a farmer heats his chicken house with natural gas, the fuel is tax-exempt; electricity used for the same purpose, however, is not). Any jobs that are created as a result of this tax package will almost certainly owe to one of these two provisions that eliminate taxes on business inputs, which is broadly considered to be smart tax policy.
Our legislators seem eager to boast that they’ve cut taxes but loath to do so in a way that actually affects the state budget (affecting local budgets is another matter). With that attitude in mind, I suggest the following:
Impose only the energy tax exemption and overhaul of agriculture exemptions, which together reduce state and local revenues by less from 2013 to 2015 than the entire package would ($250 million vs. $306 million). Then, return next year with a renewed effort to achieve the goals the Legislature set out in 2010: that is, the goals of flattening, broadening, simplifying and lowering taxes across the board.
– By Kyle Wingfield