The end of a Noble Experiment — and tax reform in Georgia

And so the Noble Experiment to rewrite Georgia’s tax code in a politics-free climate has been deflated into a routine bit of score-settling among lobbyists, a tax break for businesses and a slight decrease in the personal income tax rate.

Signed into law by Gov. Sonny Perdue last year, the effort was modeled after federal legislation used to close U.S. military bases.

The recipe looked so good on paper:

First, take a blue-ribbon panel of business and tax experts, and ask them to come up with a flatter, more reliable form of taxation that encourages growth.

Then demand that the recommendation of this disinterested panel be placed, in its entirety, in a bill offered up to the Legislature. Allow a joint House-Senate committee to make a few absolutely necessary adjustments — and then send the package to both chambers for an up-or-down vote.

Voila! Two-hundred-and-thirty-six lawmakers are handed a politics-free, eat-your-spinach moment to savor and enjoy.

But any cook will tell you that a spinach soufflé is a delicate thing.
The first thing that went wrong for the Noble Experiment was November. Experts predicted the month would come right after October. Darned if they weren’t right.

November delivered up a new governor with roots in Washington, who had played no part in the creation of the Noble Experiment. Nor did Nathan Deal appreciate being handed a factory-assembled tax-reform package set in motion by his predecessor.

Moreover, Deal had just finished a hard-fought campaign, the centerpiece of which was a 2 percent decrease in the corporate income tax.

The new governor congratulated members of the tax panel for their work — and said he didn’t think much of their idea of restoring the 4 percent state sales tax on groceries.

There is a strong case for the tax panel’s recommendation. Georgia’s tax code is a Swiss cheese of exemptions won by persistent and generous lobbyists. Property taxes, traditionally the funding source for local governments and schools, have been stretched to the limit.

The panel recommended an end to most sales tax exemptions. It also recommended broadening the reach of the sales tax and would have applied it for the first time to services such as haircuts and pedicures. In return, corporate and personal income taxes were to be gradually reduced.

Here’s another place where the Noble Experiment failed. We hate it, we mock it, but taxation as we currently experience is at least predictable. A consumption tax may be ideal, but it’s a devil we don’t know. And it never had a champion in the Capitol.

When House Ways and Means Chairman Mickey Chanell, R-Greensboro, unveiled the new face of tax reform on Thursday, he first explained that legislators hadn’t really been serious about a wholesale shift to the sales tax.

“Part of what we had to do is introduce a bill that contained all the tax council’s recommendation,” Channell said. “We have done that. As a result of that, frankly, we heard from the folks back home on some matters.”

Channell emphasized what the new version of the legislation wouldn’t do.

“We’re not going to tax Girl Scout cookies,” he said. “We aren’t going to tax groceries. We aren’t going to tax veterinary services. We’re not going to tax haircuts, legal services, AAA memberships, Sam’s Club [and] Costco memberships, dry cleaning, pedicures, prescriptions, cigarettes, and we’re not going to eliminate the exemptions on Georgia’s nonprofit organizations.”

What the legislation now does is settle two long-standing feuds in the state Capitol. Automobile dealers have long argued that casual car sales should be subject to the same sales tax their customers pay.

Cable TV and land-line phone companies have likewise been miffed that satellite TV and cell phone companies escape a sales tax for their services. Both wrongs are righted in the new measure.

Personal income tax rates would drop from 6 percent to the neighborhood of 4.5 percent. A move to raise the income tax exemption for Georgia retirees from $35,000 to $100,000 has been postponed indefinitely. The revision includes no reduction of the corporate income tax, as advocated by Deal.

House Speaker David Ralston on Saturday said the revised version of tax reform – he called the blue-ribbon panel’s work “historic” — is more important than it might appear. Businesses will benefit from an energy tax exemption. Small town banks will file under that reduced income tax rate, Ralston said – creating more cash for local investment. “This is a really big deal,” he said.

As for the blue-ribbon panel’s recommendation that the sales tax be extended beyond purchased goods, the only new service provider who would be honored with a levy on his labor is the auto mechanic.

But Ralston said this small extension will test GOP commitment to an extended sales tax. “Now we’re about to find out if we’re serious,” he said.

Senate Republicans postponed public comments about the results of the Noble Experiment until next week. Democrats were less reticent, and unimpressed.

“They indicated they were going to change the engine,” said state Sen. Doug Stoner of Smyrna. “I don’t know that they even changed the oil.”

- By Jim Galloway, Political Insider

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69 comments Add your comment

TrishaDishaWarEagle

March 26th, 2011
3:11 pm

Very little tax cutting to be applauded here:( At least rhe personal income tax rate is falling, but I expect much more now that there are no democrat leftists to obstruct. If the republicans become centrist we will just replace them too.

BRING BACK THE ELECTRIC CHAIR IN GA!!!!! Then we won’t be held hostage by liberal defense attorneys complaining about where GA gets it’s sodium thiopental. GA Power is ready when you are!

Johns Creek resident

March 26th, 2011
3:17 pm

The tax commission appointed by Governor Perdue failed in its attempt to come up with a sensible tax package. I am glad the politicians stepped in and provided some common sense to the results from the tax commissioner. One has to wonder how the tax commission came up with the proposals that it recommended.

pn

March 26th, 2011
3:20 pm

Georgia continues it’s free fall, thanks to the cowardice of our politicians, and the ignorance of the electorate.

jconservative

March 26th, 2011
3:34 pm

Why don’t we just leave taxes where they are for a few years and spend most of our time cutting spending?

I am sure the legislature and the governor are aware that spending cuts are allowed.

Native Atlantan2

March 26th, 2011
3:36 pm

I agree with jconservative..leave taxes as is and focus on spending cuts.

AX

March 26th, 2011
3:53 pm

Um, because Republicans don’t cut spending? They talk about it, but they never do it. Look at Reagan, Bush, and Bush for examples. The former and the latter were responsible for record increases in spending (and the pace of spending), 20 years apart.

So why would GA Republicans be any different?

pn

March 26th, 2011
4:02 pm

Spending has been cut to the bone and beyond. See previous post by J.G.: A dire warning: When budget cuts meet wildfires.

Mr. KnowitAll

March 26th, 2011
4:08 pm

Politicians are saying the thing is “Tax Neutral” I don’t believe them for a damned minute. They have spread a WIDE NET to tax anything that moves. You just watch. Revenues are going up, and there is no offsetting plan to lower income taxes any further.
Anybody that reviews the new tax system agrees retirees with fixed incomes are going to get hosed.

Plus….the way these backroom sleazebags drew this up, without normal committee and taxpayer review stinks to high heaven. It is clear, they are going to spring this POS on us before we know what hit us.

This is just like good ole boy Tom Murphy jacking sales taxes on the last day of the session and jamming it through. I had hoped we would never stoop to that again.

—it’s deja vu all over again….

Whole thing a Scam

March 26th, 2011
4:29 pm

Keep adding to the sales tax. That hurts the working person and rewards the people who have more income. Why don’t attorneys have to pay sales taxes. Barbers and pedicurists must, but not attorneys. Politicians in Georgia are a sorry group of people, bought as sorry as the attorneys they represent.

Centrist

March 26th, 2011
4:39 pm

Claiming the “Noble Experiment” of moving from an income tax to a consumption tax has failed is total hogwash. If it weren’t for this legislation, the income tax would be 33% higher – a very big change indeed making Georgia more competitive with its neighboring states. Taxing the most basic necessities like food and haircuts is regressive, and Democrats like this blog author would be screaming all over the state if it had been included.

Not exempting more than the current $35K retirement income is a non-competitive job killer, and will result in losing retirees to other states where they will spend paying their property and sales taxes instead.

outsider

March 26th, 2011
4:56 pm

Centrist: I can never figure out why states would want to reduce taxes to attract large numbers of retirees. (Nothing against retirees… I hope to be one in a few more years.) Once we reduce taxes to attract them, they cost us far more in Medicare. Those Medicare costs are one of the biggest budget busters. One might make the case that retirees should have lower tax rates for other reasons, but deliberately attracting retirees from other states makes no sense from a public policy point of view.

4Runner

March 26th, 2011
5:10 pm

Centrist

March 26th, 2011
4:39 pm
Not exempting more than the current $35K retirement income is a non-competitive job killer, and will result in losing retirees to other states where they will spend paying their property and sales taxes instead.

Agree 100%, that will only motivate retirees to take their money and live elsewhere. AARP Georgia actually took the position that the senior income tax exemption should be lowered to well under $35,000. If you contact them to ask why they’re lobbying against their own members you receive a weasel worded canned response that raises more questions than it answers.

bug

March 26th, 2011
5:42 pm

Each and everyone watch how many tax credits we give selected industries who provide money to selected elected officials.

double

March 26th, 2011
5:49 pm

Outsider you have medicare ,and medicaid mixed up.AARP loves the Insurance companies more than old folks.

double

March 26th, 2011
5:56 pm

Inflation another way gov.steals your wealth.Sales tax probably fairest tax of all.

Centrist

March 26th, 2011
6:05 pm

Retirees with taxable incomes over $35K have much more discretionary spending than most other age groups. That along with their property and sales tax means jobs. They have the lowest amount of costly crime statistics as a group. They pay Medicare premiums, and usually supplemental premiums – and the feds help out, so that is a red herring.

JT

March 26th, 2011
6:23 pm

So will car dealers have to pay sales tax on their purchase of a vehicle as a trade in?

double

March 26th, 2011
6:26 pm

Medicare,like Social Security was set up in a trust fund.Our elected took from these funds, and used money for whatever, and replaced it with worthless IOU’s.Now there is more money going out than being paid in.Part D supplemented by Fed.Gov.and this is a Bush herring.

td

March 26th, 2011
6:43 pm

outsider

March 26th, 2011
4:56 pm
Centrist: I can never figure out why states would want to reduce taxes to attract large numbers of retirees. (Nothing against retirees… I hope to be one in a few more years.) Once we reduce taxes to attract them, they cost us far more in Medicare. Those Medicare costs are one of the biggest budget busters. One might make the case that retirees should have lower tax rates for other reasons, but deliberately attracting retirees from other states makes no sense from a public policy point of view.

The state does not pay anything for the Medicare recipient. The state pay anywhere from 20 to 50% of the cost for Medicaid. Under your assumption, the smart thing for a state to do would be to attract all the old people and drive the poor people out.

deegee

March 26th, 2011
7:06 pm

Go to the GA DOR website and take a look at all of the people that are delinquent in their taxes. What is the legislature doing about that? Instead of all the hand wringing over changing the tax code why not force the people that aren’t paying to pay what they owe. If they can’t pay then they can go to south Georgia and fight wildfires.

catlady

March 26th, 2011
7:09 pm

Don’t those over 62 avoid much of the property tax now? My neighbor with acres and a big house pays $36 per year in property taxes (he may have a CUVA also). In counties like mine that attract high numbers of Floridiots, we have too few people paying property taxes to adequately fund the government at all, when you count in ag/forestry property discounts, CUVAs, and forest service land. They sure do use (and complain about) the services, however!

deegee

March 26th, 2011
7:31 pm

Georgia Department of Revenue, March 2011
Delinquent Taxpayers List – Individuals Sorted by County and Name
Total: $995,339,173.51

Wouldn’t that go a long way toward solving our problems????

Not over

March 26th, 2011
9:22 pm

Unless the version of HB 385 coming out tomorrow is different from what is already on the table, there will be a sizable income tax hike for many Georgians despite any reduction in the rate, because the legislation will eliminate the state’s “personal exemption” of $2,700 for individuals, will reduce exemption for other dependents, and will eliminate most of the deductions on Schedule A of the federal 1040. This legislation does incorporate a new graduated “tax credit” for certain income levels, but that credit declines drastically within three years of the enactment of the bill. Middle income Georgians would be wise to watch for and carefully comb through the final version. If you need help understanding the bill, check with your tax accountant. Then get on the phone to your state legislators and tell them how the proposed tax reform will affect you. As for the AARP spokeswoman who said we “greedy geezers” don’t need the $35,000 retirement income exclusion, why in the world is she working for an organization that is supposed to be advocating for senior citizens?

cs

March 26th, 2011
9:34 pm

Eliminate sales taxes and fuel taxes. Raise corporate taxes.

Kelly McCutchen

March 26th, 2011
9:50 pm

The personal income tax would be cut by 25% under the new proposal – immediately rather than phased in. I think that is quite significant. The tax on services was never a major part of the reform and would have reduced the income tax rate only about a tenth of one percent. Corporations didn’t want to give up their tax credits, so they didn’t get a reduction in their tax rate. The sales tax exemption for energy in manufacturing is not only good tax policy, but something both Democrats and Republins have tried to do for over a decade. Add in an incentive for telecom investment by removing another sales tax exemption and you have very meaningful tax reform.

Kelly McCutchen

March 26th, 2011
9:51 pm

Sorry – Republicans.

Not over

March 26th, 2011
9:52 pm

If Republican legislators push through HB 385 in the third year of an economic downturn, and it does pull money out of wage-earners’ paychecks, the Democrats will own the state government within four years. A Special Session on Redistricting is planned for late summer. Slow down and between the end of the current session April 15 and the special session, study the “actual” impact of the higher income taxes and sales taxes on wage earners. Otherwise, you may tip the balance for people who are barely making it from paycheck to paycheck. And every time they look at their smaller paychecks, they will see what Georgia’s Republicans have foolishly done to them.

Clinton "Skink" Tyree

March 26th, 2011
10:00 pm

Reducing taxes on businesses will do nothing. Jobs won’t be created until the demand for products and services outpace the ability of the existing work force to meet demand.

All this talk about business tax deductions and the economy is horse hocky. The politicians are in the back pocket of business and no longer give a rat’s patooty about the working class stiff — and why these folks remain loyal to these scam artists with an “R” behind their name is a mystery to me.

Centrist

March 26th, 2011
10:12 pm

The exemption for seniors over age 62 on property taxes is actually not what goes to the state – but toward the school bonds – and that is limited. For most of them, their children have not been using the school system for over a decade if ever.

atlmom

March 26th, 2011
10:49 pm

Florida attracts retirees…then takes all their money when they die. Check out the ‘death taxes’ in florida. GA may be attracting them…but GA does not take a whole lot of anyone’s assets when they die…
IF GA can lower the income tax, that would be fantastic. Husband and I were considering moving to Massachussetts…and were *shocked* to see that their income tax rate is LOWER than GA’s. Considering their schools are SO much better (and the properties taxes also seemed lower) – um, why do they call it taxachussetts again???
Then the border of GA has the states of TN and FL – which don’t have any income tax at all…hmmm….

theokelly97

March 27th, 2011
2:44 am

Refinance mortgage rates going to go up for sure. Any body still thinking should just make use of the low rates. Do not wait and regret it is not that difficult to make it happen. Online is very easy check out either “Mortgage Refinance 123″ before you check with the “major banks”

BigBusinessRules

March 27th, 2011
6:14 am

The Republican Governor and Legislature is so against the little man it’s almost criminal. They have catered to the whims of the automobile lobby and enacted a tax on casual sales. This will offer no incentive to the consumer to buy a used car from an individual, leaving the owner of a used car very few options, either lower the selling price of their used cars (at a price below fair value) or trade it in on a new car at a below wholesale value. More economic damaged will be done to the average citizen trying to sell their used car than the additional sales tax revenue generated on the casual sales, bottom line…..indivicuals will have less money to spend in Georgia, the state looses economic growth in discretionary spending by the individuals and the big automobile dealers will have more money to spend on exotic vacations and second homes outside Georgia. I think I’ll move to Florida, at least I won’t have to pay an ad valorem tax on my vehicle and be exempt from state income tax.

Winfield J. Abbe

March 27th, 2011
6:17 am

These jokers never get it do they? Instead of making things simpler, they are making them more complicated and therefore more costly either for personal time or paid accountant time spent preparing all this garbage for government. Now the deductions and exemptions for the state return will not coincide with those of the federal returns making things much worse than they already are.
Stop providing favors or penalties to special groups. Eliminate property and income taxes completely and force lawyers to pay sales tax like everyone else. All rents will come down if this is done. Raise the sales tax to a high amount necessary to pay for costs of government.
This is the fairest way to tax. Even the many illegal citizens who operate on cash and never pay tax must buy consumer items. Even drug dealers and other illegal operations would then have to pay sales tax. And we wouldn’t have all these local unfair local bureaucracies wasting money and time taxing property in 159 counties.
Eliminate the wasteful and inefficient and unfair property and income taxes and slap a sales tax on every transaction. This is the fair and intelligent way to go.

The Centrist

March 27th, 2011
7:12 am

And so it goes. The South lost the Civil War primarily because the real conservatives (upper middle class and upper class) refused to be taxed. On the spending side, the State’s expenses are back where they were when Perdue took office. That was when Sonny said he would cut wasteful spending. This means the State needs to cut spending back another 20% to where it was under Barnes and the State population was much smaller.

atlmom

March 27th, 2011
8:21 am

@winfield: the sales tax is a terrible way to raise money. Sure, it can raise the money you want, but those at the bottom end of the scale end up paying a lot of money in taxes, while those at the top pay so much less. It’s not right and it shouldn’t be the way anyone wants business done.

jconservative

March 27th, 2011
8:43 am

AX March 26th, 2011
3:53 pm

You are, of course, 100% correct.

TRUTH

March 27th, 2011
9:28 am

Let’s boil it down…loss of jobs, equates to business loss, home foreclosures, and general calaminty. Banks have ceased credit, medical costs have (and have been skyrocketing), fuel cost are exploding, basic services are now costing more. Call me crazy, but its all a result of JOB LOSS. The country over the last 10-15 years has lost its independence in determining its path and have been sold to the corporate factions that control our politicians. Evidenced clearly here in Georgia. The non-story of bank failures in this state tells the tale. 50 plus “banks” have failed, in large part due to the housing market. Those wonderfully “creative” financing plots that lured in millions of people and then packaged wildly and sold as “securities.”

Municipalities, counties, states, and the Fed basically propped themselves up on “imaginary” money. Losing sight of the engine that would have made these projections realistic, jobs. Doesn’t take an army of economists, politicians, etc., to figure out once that without income there is no outflow. There is no revenue to collect resulting in, as stated earlier, CALAMINTY!! You can cut services to the bone, you can threaten the public with incarceration for failure to pay taxes, but a wise man once said, “You can’t get blood out of a rock!”

Now that big business gets tax breaks (and in the case of GE, does not pay taxes at all), the rich getting tax breaks, the burden falls to the MOST affected class of all, the middle class who are out of work. DUH…

Republicans made a claim that they would get us back working. I say you’re lying. You’ve given and have continually given tax breaks to the corporate and wealthy communities with NOTHING in return to the citizens of this state and the country. All that talk, all those lies, and I am amazed that people still elect you idiots.

TRUTH

March 27th, 2011
9:31 am

Ooops, CALAMITY…. I was on a roll…..

Road Scholar

March 27th, 2011
10:04 am

As mentioned above, retirees have more disposable income, which also means they need services performed by businesses (jobs). Also they tend to be more conservative voters, alledgedly feeding Republican ranks.

khc

March 27th, 2011
10:10 am

good luck real estate industry in GA; no mortgage interest deduction? we already have one of highest foreclosure rates…..sounds like general assembly wanted to lower their income taxes now that most of them have paid off or down their mortgages on house…..they should leave taxes alone if revenues are still moving up…..think last months report well up

khc

March 27th, 2011
10:21 am

i disagree with abbe on his continuing rant about property taxes….renters pay property taxes imbedded in rent as landlords pay property taxes…in addition renters do not get homestead exemptions…please explain professor: sales tax most regressive http://www.itepnet.org/whopays3.pdf

Neil

March 27th, 2011
10:29 am

I just love the gross ignorance of some of the folks posting here…presumed liberals…when they mention that “Republicans don’t cut spending” as if it’s fact. FACT = the last 3 state budgets passed have been smaller than the prior fiscal year. The state budget is shrinking out of necessity. Here in GA you cannot run up deficits like the folks in DC, so the only two alternatives are cut spending or raise taxes.

Sienna

March 27th, 2011
10:31 am

deegee

March 26th, 2011
7:06 pm
Go to the GA DOR website and take a look at all of the people that are delinquent in their taxes. What is the legislature doing about that? Instead of all the hand wringing over changing the tax code why not force the people that aren’t paying to pay what they owe.

That’s an aspect that many people don’t consider. The Georgia Dept. of Revenue makes only a half-hearted effort to collect unpaid taxes. A perfect example is what happened with the Rexall Grill in Duluth last year. The woman who ran it went 5 YEARS without paying state sales taxes and ran up a $500,000+ tab before the State finally stepped in. They auctioned off a few items for pennies on the dollar, then allowed the same person to reopen the business and start the whole process over again. Article @ http://www.ajc.com/news/gwinnett/state-auctions-rexall-items-565446.html

Michael

March 27th, 2011
11:01 am

The person who says attorneys would not pay the tax but barbers would misses the whole point and is trapped inside their own mind and class war. Attorneys AND Barbers DON’T pay the tax on services — you do!

atlmom

March 27th, 2011
11:06 am

what happened to my post? :(

atlmom

March 27th, 2011
11:15 am

Neil: I’ve said the same for some years. No matter what you think of Perdue – he definitely was on the side of not raising taxes, especially in a bad economic climate. He figured out a way to balance the budget without raising taxes. he did the right things – he got rid of the ’sales tax holiday’ when he needed to, he got rid of some ‘credits’ for property taxes, and he actually cut the budget. It might not have been pretty, but he did not want to raise taxes when he knew it wouldn’t be a good idea. He actually balanced the budget (now, whether I agree with him or not regarding the things he cut, that’s a different story, but he was governor and I’m not).

atlmom

March 27th, 2011
11:23 am

@road scholar: okay, I’ll try again.
No, seniors typically vote D because the D’s keep saying: vote R and they’ll take away your social security.
And the Rs don’t do anything except say the absurd, as in: oh, we should have personal accounts (that’s what one is supposed to do for oneself, the govt has no business doing that AT ALL!).
Anyway – what the Rs NEED to do is this:
Say: social security is not a savings account. It is not a lockbox. There is no pension plan. It is a CURRENT transfer from young to old. that is all.
So every penny is comign from the young and going to the elderly. The money is coming from your children and grandchildren, and because we are borrowing so much, from your great grandchildren.
While are are a civilized society – and we think that taking care of the elderly is a good thing, and we don’t want seniors living in poverty…we need to make changes to the social security system so that people aren’t on it for 40 years. So that we stop stealing from the young.
The Rs however are cowards, and will never say that.

atlmom

March 27th, 2011
11:28 am

@michael: i think that people are thinking of the impact.
They don’t know it, but they are thinking of the elasticity of demand. there isn’t necessarily that much when one is really in need of a lawyer. But typically people can get their hair cut less often, waiting and extra week or two from when they were doing it before, if the cost is that much higher.
Just a thought…
OR one doesn’t tip the lawyer…so perhaps people are thinking that the revenue a lawyer gets wouldn’t go down, but one would probably tip less for their hair cut, so that would affect the hairdresser/barber’s revenue MORE.

double

March 27th, 2011
12:17 pm

Atl mom these old dudes on social security now are the young of yesterday.We paid social security taxes from the day we went to work.Are you saying we should not be allowed to receive our just payments.You say Ma.has less property tax.I doubt that ,but will not take time to search.I suppose the incarcerated should have better care than the eldery.