The tax reform Georgia won’t get if this tax bill passes

If all goes according to plan, sometime today the state Senate will pass a bill tinkering with Georgia’s tax code. Thus will two years of ambitious thinking about tax reform end not with a bang, but with a whimper.

The way to think about this tax package, HB 386, is not whether it’s bad on its face. Some parts of it are clearly good; others elicit more of a “meh.” It’s more good than bad.

Rather, the real problem is this bill makes it harder to achieve the very bold tax reforms discussed since 2010.

I’m talking about lowering the personal and corporate income tax rates as low as a flat 3 percent from today’s top rate of 6 percent. That’s a worthy goal for a state sandwiched between two rival states, Florida and Tennessee, with personal income tax rates of zero. A third, South Carolina, is currently moving toward halving its own income tax rate to 3 percent.

A special council created in 2010 to study tax reform recommended just such a reduction to help Georgia remain competitive. It was a big recommendation, a controversial recommendation, but also a well thought-out recommendation.

The businesspeople and economists who served on the special council came up with a list of tax increases to offset these reductions. State law requires a balanced budget, and spending is climbing again now that revenues are rising: The fiscal 2013 budget increases spending by more than $900 million. (State officials will tell you they had no choice about increases for education and Medicaid. Let’s say they’re right. The result — more spending — is the same even if it’s not voluntary.)

So, offsetting tax increases seem politically necessary. The biggest recommendation of the special council, at $463 million per year, was reapplying the state sales tax to groceries. It was summarily dismissed by Gov. Nathan Deal.

Two of the other large offsets were taxing person-to-person sales of used cars ($151 million) and ending an exclusion for certain retirement income ($272 million). But variations on those ideas are incorporated into HB 386, so we can’t count on them to help pay for future tax reform.

That leaves tax hikes on cigarettes, telecommunications and personal services such as auto repairs — all of which have been heavily lobbied against. Anyway, those three increases together would not offset a sizable cut in the income tax rate.

Failing that, we’d be left with an increase in the sales tax rate. And there are a number of legislators who say they want to shift the tax burden from income to consumption. But if the T-SPLOST they created passes this summer, boosting sales tax rates as high as 9 percent in Atlanta, don’t expect to see the state raise the rate by another penny or two.

All this leaves the state mightily restrained in its ability to make those income-tax cuts, which are important to the state’s future competitiveness. “Testimony given at Council meetings,” the special council reported in 2011, “indicates cutting personal income tax rates would be the most advantageous change Georgia could make to attract high-technology companies and jobs.”

Yet, HB 386 appears to put us even further from reaching that goal. Instead, we get a partial reduction of the “marriage penalty” that amounts to $120 or less per year for Georgia couples and is less important to most of them than a rate cut would be. That, and a renewal of the old back-to-school sales tax holiday that the special council described this way:

“Sales tax holidays appear to have no effect on consumption other than to change the timing of purchases and shift the mix of items” purchased. And while there may be some sales gained or lost along the borders of states that do have sales tax holidays, “there is no empirical evidence to suggest that holidays provide a material boost to a state’s economy.”

But it would take up another $32 million to $48 million a year that could have gone toward cutting income tax rates.

There are a couple of items in the reform that are clearly pro-growth. The best of these is the exemption from sales tax of energy used by manufacturers. No surrounding state charges that tax, and it helps both businesses new to Georgia (think Caterpillar) and our existing companies (think North Georgia textile mills).

But that change and a couple of other small ones could have been made alone, with less impact on the state budget, and without crimping our chances at truly comprehensive tax reform in the future.

– By Kyle Wingfield

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47 comments Add your comment

Karl Marx

March 22nd, 2012
6:13 am

You can’t make “Bold” Tax reforms when you refuse to really cut spending. This bill like everything else the state legislature has passed has special interest and lobbyist written all over it. For the taxpayer the state legislature has no credibility left.

ByteMe

March 22nd, 2012
7:15 am

The lobbyists win again.

Why are we surprised? But we don’t need no ethics laws to keep the lobbyists from funneling “gifts” to our legislators so they can return the favor with these kinds of changes.

PinkoNeoConLibertarian

March 22nd, 2012
7:33 am

Gotta love it when the idea of a “balanced budget” is that when revenues start rising make the spending rise to match it. Heaven forbid we should pay off some debt, put some in savings and then lower the tax burden on The People.

man behind the curtain

March 22nd, 2012
7:44 am

Race to the bottom. Prostrate before the holy lobbyists. Any of you legislators have family members that need jobs?

man behind the curtain

March 22nd, 2012
7:48 am

A used car sales tax, between individuals, by any other name, is still a used car tax. The citizens have already rejected that stinker once before.

Road Scholar

March 22nd, 2012
7:58 am

Kyle good point about TSplost and the sales tax rate. Consumption tax only…should there be a balance between consumption tax and income/business tax or other “consistent” taxes? What would have happened to the budget/revenue stream if before this last recession, we only had consumption taxes? Would our predicament been different? Worse?

md

March 22nd, 2012
8:01 am

All they really need to do to remain competitive is to lay out the facts about their competition. Not too long ago, I did a quick and dirty comparison between costs in GA and FL…….the result?, about the same even though FL has no State income tax.

Don’t equate no income tax with lower costs, as FL gets their money through “fees” and other taxes. FL does tax used car sales, they also charge 3 to 4 times as much for the basics like getting tags, titles and licenses. (GA title $18….FL $75).

Then factor in insurance costs……cross the ST Marys river, and insurance costs drop by the hundreds if not thousands.

And gas is normally at least 10 cents a gallon cheaper in Ga.

If GA wants to remain competitive, a not as costly advertising campaign would be the ticket.

Ayn Rant

March 22nd, 2012
8:03 am

Why not increase the fuel tax rate to raise revenue for infrastructure spending and job creation? Georgia taxes fuel less than other states. No one would notice a few more cents tacked onto a gallon of gasoline.

jconservative

March 22nd, 2012
8:04 am

“State law requires a balanced budget, and spending is climbing again now that revenues are rising: The fiscal 2013 budget increases spending by more than $900 million.”

So instead of playing with taxes to make up the $900 million, why not cut $900 million in spending by reducing the size of state government?

Finn McCool (Class Warfare = Stopping Rich People from TAKING MORE of OUR MONEY)

March 22nd, 2012
8:32 am

All this leaves the state mightily restrained in its ability to make those income-tax cuts

Conservatives always want their cake and the ability to eat it, too. Conservative refrain:

“I want, I want, I want”

Are you willing to pay for it?
“No, no, no. Let someone else pay for it. Not me!”

What is the consistent theme of the conservative?

me me me me me me me me me me me me me me

md

March 22nd, 2012
8:34 am

“Are you willing to pay for it?
“No, no, no. Let someone else pay for it. Not me!””

Sarcasm? Surely……or someone is mighty confused………

Greg in the Highlands

March 22nd, 2012
8:42 am

Add a new category for “sin taxes” and raise millions. Tax cosmetics and perfumes/colognes at the same rate as cigarettes and liquor. Theses are items we do not need to survive and most Georgians use them excessively. It would not only help most breathe easier, we could see people for who they really are and make money at the same time.

Road Scholar

March 22nd, 2012
8:44 am

Ayn: Because they don’t have the nerve to do something that is logical and needed….it’s a tax…no….a user fee increase! The gas tax has not been adjusted for inflation since the 1980’s!

The additional issue is that all cars don’t get the same mileage/gal or have the same weight (heavier veh do more damage to the pavement). The desired move is to a mileage/congestion based system like the I 85 managed lanes….but for all lanes. No one has identified a good way to collect the “user fee” under the mileage program.

the red herring

March 22nd, 2012
8:44 am

education costs should be brought down. salaries for education (college and k-12) administrators and the sheer number of those jobs are outrageous. look at what we pay college presidents for essentially doing fund raising. cuts should be made before taxes are raised. the sales tax needs to go back on groceries and the income tax lowered. all citizens need to be contributing to the taxes raised in ga. (broaden the tax base). this would also include persons passing through ga. as well as illegals buying groceries. now how fair is that! Just because times have gotten a little better doesn’t mean every dime raised needs to be spent as fast as it is raised—we need politicians with more will to save for a rainy day rather than spend, spend, spend…. good luck on that. i agree that this was a lost opportunity to improve the ga. tax code.

Road Scholar

March 22nd, 2012
8:47 am

jconservative: Do you realize GDOT has gone from 12500 employees in the 1980’s to 6300 10m yrs ago to 4900 6 years ago to less than 4200 today? They are now cutting muscle and bone, in addition to the brain drain due to retirements.

Taxi Smith

March 22nd, 2012
8:56 am

Finn, I think you must have had a bad night’s sleep. What a load!

Bart Abel

March 22nd, 2012
9:06 am

…there are a number of legislators who say they want to shift the tax burden from income to consumption…

In other words, there are a number of legislators who say they want to shift the tax burden from the wealthy to the poor and the middle class.

The love affair that many Georgian’s have with sales taxes is both counterproductive and cruel.

BW

March 22nd, 2012
9:06 am

Kyle

I already think this state is down to bone and marrow on cuts. The simple reality is that you paying the same, just from a different pocket. Consumption taxes would probably affect the lower income brackets more. In either case, the leaders of this bill weren’t comfortable implementing the proposed revenue adjustments.

scrappy

March 22nd, 2012
9:07 am

Can we cut out the entire state government? They don’t seem to do anything worthwhile & are costing us tax money….

real john

March 22nd, 2012
9:20 am

Road Scholar:

You really want to make the “usage fee” argument. Fine then.

1. I don’t have any children in school, guess I won’t pay my property taxes that goes for schools and educating kids that aren’t mine.

2. I pay for my own healthcare. Guess I won’t pay the part of my taxes that goes to Medicaid either.

Shall I go on. I (and a good many of us) pay plenty of taxes we don’t “use.”

Yes, Georiga does have a lower gas taxes than many other states. In some gases 30 or 40 cents cheaper. Is the gas 30-40 cents cheaper in Georgia? Nope.

Why don’t you come up with an idea about actually CUTTING spending? I forgot, Democrats wouldn’t be able to buy voters. Eventually the house of cards is gonna fall. The math doesn’t lie.

real john

March 22nd, 2012
9:24 am

Sorry Road Scholar, I meant Ayn Rant.

Jm

March 22nd, 2012
9:29 am

As a FL resident now, I will honestly say the tax cut from moving here made a huge difference to us. It will be daunting to ever contemplate moving back to GA and face an immediate 6% pay cut.

If GA doesn’t lower the income tax rate, it will continue to lose to other states.

That said, GA could levy a higher property tax to offset an income tax reduction

[...] Kyle Wingfield. About the author [...]

ragnar danneskjold

March 22nd, 2012
9:45 am

Sounds like the state’s “education” and “medicaid” laws/practices are making us less competitive with other states in the region. That is what put the rust into the “rust” belt.

Bart Abel

March 22nd, 2012
9:51 am

As a FL resident now, I will honestly say the tax cut from moving here made a huge difference to us. It will be daunting to ever contemplate moving back to GA and face an immediate 6% pay cut.

The irony of Jm’s post is that he could very well be paying more in Florida taxes than he would have paid in Georgia. Florida nickels and dimes its citizens with higher state sales taxes than Georgia, a statewide property tax, relatively high fees on pretty much anything you can imagine, and so on. It’s death by a thousand cuts.

The last I looked, Florida also had a higher unemployment rate than Georgia…and that’s saying something.

The Snark

March 22nd, 2012
9:52 am

It absolutely confounds me — and I can’t think of a better word to describe the feeling than “confound” — that modern-day conservatives can literally spend years and barrels of ink talking about taxes without ever seriously addressing WHAT IT COSTS TO RUN A GOVERNMENT. And vague phrases about “the need to cut spending” don’t count. You want police, courts, jails, schools, disease surveillance, restaurant inspections, roads? Well folks it costs money and that requires taxes.

In my kids’ words, “grow the f*** up.”

sheepdawg

March 22nd, 2012
9:52 am

Kyle, Good article. Keep exposing the corrupt system we call our legislature. Ethics reform relative to lobbiest expenditures has to be the first step in change to get our government back to the masses as opposed to pandering to the select. Every current member needs to be unelected when the lobbiest are kicked out of the Capitol. Then maybe good citizens (as opposed to crooks and thiefs) will acutally seek public office for the right reasons.

Jm

March 22nd, 2012
10:22 am

Bart. My “property taxes” are $3000 more here. My auto taxes are $900 less. My water bill is $25 per month, what’s yours. I done have a natural gas bill. My electric bill is $50 a month. And mustard income taxes are $12,000 less.

Do the math. I’m way better off down here. FL doesn’t nickel and dime and the FL economy is coming back fast. Housing prices are going up where I am. And my company can’t find enough qualified candidates to hire.

Unless something is done to radically fix GA and Atlanta, the state is going to stay stuck in the doldrums.

Jm

March 22nd, 2012
10:24 am

Don’t, not “done”

Jm

March 22nd, 2012
10:25 am

Mustard? “my state” oy

jd

March 22nd, 2012
10:46 am

When the bond rating companies do the analysis that the legislature should have done, they will take steps to limit Georgia’s ability to borrow based on unstable revenue for the foreseeable future.

No Artificial Flavors

March 22nd, 2012
10:51 am

It is obvious that our legislators are having trouble reforming taxes to fit (pay for) the current services provided for or paid for from state funds. What Georgia really needs is a structural enema. Why and how do we, the state, provide the services we do? Because it’s always been that way? Because we have incrementally added to many of the arcane and illogical laws regarding the functions ofthe state? Because we made once sane laws for providing services insane in complexity to appease a self-serving interest back home? These are the questions that should be asked. Why so many powers given to locally elected officials that are allowed to drain local citizens for cash? Why so many add on fines and fees for traffic tickets? Why must we have so many court administration bodies in Georgia? Why must the Secretary of State Office make so many requirements and do many of these requirements actually serve anyone other than a job placement? Why does the DCA hold so much power over local governments with costly regulation and reporting requirements? Whom does this serve? Just questions.

JF McNamara

March 22nd, 2012
11:03 am

@jconservative,

“So instead of playing with taxes to make up the $900 million, why not cut $900 million in spending by reducing the size of state government?”

When you look at what we are spending on, it’s actually things we need. Here is a link to Georgia’s budget. Quick links have the files you need.

http://opb.georgia.gov/02/opb/home/0,2817,161890977,00.html;jsessionid=4FC25ECD4C9A2199904D299EF18A99E2

Jm

March 22nd, 2012
11:36 am

GA is over spending on education subsidies for secondary education

The dirtbag republicans just don’t have the will to do what they need to

In addition, a bold governor would say: we’re going to reform Medicaid

If you don’t like the solution, you can cut off all the poor people and then it is the fed’s fault for being idiotic

Bart Abel

March 22nd, 2012
12:32 pm

my FL company can’t find enough qualified candidates to hire.

US unemployment rate: 8.3 percent
GA unemployment rate: 9.2 percent
FL unemployment rate: 9.6 percent

http://www.bls.gov/web/laus/laumstrk.htm

Lil' Barry Bailout (Revised Downward)

March 22nd, 2012
12:34 pm

When you look at what we are spending on, it’s actually things we need. Here is a link to Georgia’s budget.
——–

Yes, we desperately needed that fishing museum and state-owned golf courses.

Lil' Barry Bailout (Revised Downward)

March 22nd, 2012
12:35 pm

Bart, note the poster’s use of the word “qualified”.

Logical Dude

March 22nd, 2012
12:46 pm

Kyle,
John Moormans looks like a spambot.

Bart Abel

March 22nd, 2012
12:53 pm

So what you’re saying, Lil’ Barry, is the Florida’s education system sucks. Maybe if Florida had an income tax, then they could have improved their education system, Jm would be able to find “qualified” workers, and Florida’s unemployment rate would fall. It’s all connected.

Lil' Barry Bailout (Revised Downward)

March 22nd, 2012
12:56 pm

So what you’re saying, Bart, is that government schools are inferior to private schools. Couldn’t agree more!

Kyle Wingfield

March 22nd, 2012
1:13 pm

Logical Dude @ 12:46: Yep, thanks for pointing out. Problem should be solved.

luangtom

March 22nd, 2012
1:19 pm

When will the politicos actually solve a tax-problem by mindful spending habits? Until we have a common-sense approach to spending in GA and the USA we will not see any far-reaching effects of any tax-bill, good or bad.

MiltonMan

March 22nd, 2012
3:23 pm

Thank goodness the clown democrats are not in charge anymore. If they were this would be what is going on at the Gold Dome:

(1) Rich, evil kids would be removed from obtaining HOPE.
(2) The “Northern Arc” would be revisited.
(3) The redistricting maps given to us by the clowns would be shot-down by the Georgia Supreme Court
(4) Sunday alcohol sales would still be prohibited

ld

March 22nd, 2012
6:26 pm

common sense can be uncommon in the Bible belt

ODD OWL

March 22nd, 2012
9:27 pm

Share the wealth, tax the rich, fix the roads,rebuild the bridges, expand the airports and rail service… clean up the toxic waste dumps and expand educational opporturnities… Georgia don’t need tax cuts, George needs to increase taxes on the rich, the businesses and the corporate bosses…

Rick

March 22nd, 2012
11:59 pm

Let me get this straight, I have to pay sales tax on my internet sales, because Deal wants to create more jobs in Georgia by giving the agricultural industries even more tax breaks. Has that industry even stop their dirty practices of hiring illegal aliens to make their profits grander each year?!!! Don’t give them a penny in tax exemptions unless they can prove they don’t have a single illegal alien working their fields (hire Georgia CPAs to monitor the tax giveaways). Hire real Georgians to make sure Americans are hired to work our agricultural fields. Bring Americans back to the fields. Americans are hard workers, who want a fair wage.

Robert Chambers

March 25th, 2012
12:33 pm

Tax wealthy individuals at higher rates: Obama = Bad, GA GOP Leadership = Good
Pass unpoplar legislation by tricks like joint committee and up/ down votes with no amendments in four days at end of session: Obama = Bad, GA GOP Leadership = Good

Our Republican leaders have learned well, they are just Pelosi-Obama puppets. Class war againist seniors, increase tax on individuals, I surely did not vote for this. Good luck Georgia.