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
atlmom
March 27th, 2011
12:52 pm
@double: where did I say that? I just said that we need to look at it differently. that it was set up when life expectancy was about 65 and now it’s about 80. So we can ill afford to do what we’ve been doing and we need our leaders to acknowledge that. I said above: we need to provide for the elderly. I was very clear. However, when you were paying in you were paying for CURRENT retirees – a transfer from young to old. Now, others are paying for you. That’s what we need to look at.
Not a ‘i’m going to get mine everyone else be screwed’ mentality.
atlmom
March 27th, 2011
12:56 pm
re: property taxes…someone i know has filed for the exemptions. and basically won’t be paying much in property taxes…and she said that her friend was upset because she couldn’t get the exemption. Apparently, one only has to file once, then one is exempt from all those property taxes forever. so if you’re smart, you manipulate your income for one year, then you’re all set for future years, which could be 20 or more.
Bill Evelyn
March 27th, 2011
1:24 pm
If you read the final committee report it was economic nitwittery. A mix of Marxist re distribution, new Keynesian complications, with some Classical and Austrian economics frittered about. Even a little Milton Friedman. It would have accomplished nothing except reward some, punish others, kill jobs except for accountants, and generally cause confusion. It was doomed to fail.
Rural Education
March 27th, 2011
3:08 pm
I keep hearing the “Tea Party” go on and on about what is in the Constitution, where does it state in that document that the job of govt. is to facilitate businesses? At every level, I hear this constant refrain of lower taxes and jobs will come. This is a disingenuous argument, based on the old “trickle down” theory.
atlmom
March 27th, 2011
3:56 pm
@rural: okay, then let’s cut taxes to the bone and even more. why are taxes so high in the first place? No, the job of govt is not to facilitate business – but if we want to attract businesses to GA we have to compete with other states that *are* doing the same thing.
AND you are mixing up two policies – the federal constitution has not so much to do with the state constitution. The federal constitution limits the powers of the federal govt. Each state has its *own* constitution that indicates what the state powers can be. has nothing to do with each other.
Last Man Standing
March 27th, 2011
5:05 pm
Rural Education:
“I keep hearing the “Tea Party” go on and on about what is in the Constitution, where does it state in that document that the job of govt. is to facilitate businesses?”
Why don’t you tell us WHERE in the Constitution that it says the job of government is to educate the masses, and be SPECIFIC? Do not reply with “promote the general welfare” because that doesn’t cut it. The government made it their job simply because we didn’t resist it.
Last Man Standing
March 27th, 2011
5:14 pm
atlmom:
“re: property taxes…someone i know has filed for the exemptions. and basically won’t be paying much in property taxes…and she said that her friend was upset because she couldn’t get the exemption.”
Some counties and cities “sunset” a portion of the property tax for homeowners after they attain a certain age, regardless of income or wealth. The county in which I live will not require payment of school taxes (the largest portion of the tax bill) after you reach the age of 65 and IF your income is below a certain level. The level they set it at here is well below the poverty level which means that nearly everyone in this county will pay the full tax burden until the day they die.
I have looked before for some central point to gain information of property tax breaks on every county but had no success.
Diogenes
March 27th, 2011
5:16 pm
atlmom, taxes are not the problem. They are too low and not appropriately placed. Education is a big deal. I am mostly retired, but I still sit on the boards of a few medium sized businesses that we are currently looking at expanding operations with. My big reluctance about opening logistics centers in GA is the lack of local talent and it costs too much to relocate educated people to GA.
GA is stupid and anti-progressive. That combination is a big liability.
Rural Education
March 27th, 2011
5:46 pm
Last Man Standing: This article is about taxation, not education so I do not see the relevance of your question. I was merely pointing out that this constant refrain from business for tax breaks and tax cuts does not translate into jobs, despite the fact that we hear that it does. The truth is that since the destruction of the “blue collar” middle class, this country has taken a step backwards. The disparity in wealth between top and bottom is about the same as it was before the introduction of the income tax with the 16th amendment and the period just before the stock market crashed in 1929. At the same time that wages have stagnated for the majority of Americans and jobs were outsourced, the salaries of the CEO’s have gone through the roof. Mind you the market has worked like it should, my 401K has rebounded quite nicely from the recent lows. I just think we should be honest with the people about who controls the state and the country, and it is “big money”.
deegee
March 27th, 2011
6:55 pm
There are millions of people that listen to talk radio all day and think that they are on par with Neal, Rush and Sean. Neal, Rush and Sean are fabulously wealthy. It is in their best interest to keep these poor, naive saps convinced that they are somehow going to benefit from a tax cut for millionaires. Neal, Rush and Sean want the lonely, old shut-ins to believe that the U.S. could be so much more prosperous and competitive without unions. When are these people going to learn that trickle down is just the same as pi$$ing in your face and calling it rain?
Last Man Standing
March 27th, 2011
7:18 pm
Rural Education:
“Last Man Standing: This article is about taxation, not education so I do not see the relevance of your question.”
I have no problem seeing the relevance as far more than half of my property taxes are “education”, or school taxes. The shift of funding from the federal to the state has hit the property taxpayers pretty hard. The government has us well within its’ clutches since we can’t sell property due to falling values and they fail to reduce the “assesed value” correspondingly. It is really hurting those of us who are retired and living on a fixed income.
Last Man Standing
March 27th, 2011
7:19 pm
Diogenes:
“GA is stupid and anti-progressive. That combination is a big liability.”
Well, thanks for compliment. Just take your light and search elsewhere . . .
atlmom
March 27th, 2011
7:30 pm
@diogenes: taxes are too low? wow. i’m paying about 50% of total income in taxes. and I have a business that loses money (in addition to income from a ‘real’ job).
So if taxes are too low, well, then I have no idea what to say. wow is all, maybe.
i guess I’ll be forced to move to the caymens and renounce my citizenship or something. wow.
And my kids go to APS – money is NOT the problem. they have plenty of money. giving them more will not solve anything, that is FOR SURE.
i know plenty of educated people in GA, of course the market’s not too bad for us, but still, some are out of work and looking…
atlmom
March 27th, 2011
8:02 pm
@deegee: i don’t see how it’s fair for anyone to pay as much as the top tier pays in taxes. If the FEDERAL taxes are close to 40% – that doesn’t include all the OTHER taxes people in those brackets are paying. it’s not someone pulling any wool over my eyes. look at the federal govt: they have a spending problem…not a revenue problem.
lutherscott345
March 28th, 2011
5:48 am
As a general rule, if you can shave at least a half point off your current interest rate, it is a good idea to refinance. If you currently have a home mortgage above 7%, the time is now to make a change. Look online for “Mortgage Refinance 123″ they gave me the lowest rate than everybody else which is 3.21%.
yuzeyurbrane
March 28th, 2011
11:39 am
Basically, the so-called Reform bill ended where it should have. It was not a reform in the sense that it would help most low and middle income people. And the process proposed to be used, but aborted, was not democratic. The legislature listened to its constituents, not just lobbyists, and did what is supposed to do: legislate. You cannot delegate democracy.
Self_Made
March 28th, 2011
2:12 pm
“Just cut spending”??? Hey you yahoos…what’s left to cut?? Revenues from income taxes tank faster than the overall economy while demand for government services increase. We need new tax structure that is more stable than the unemployment rate, and taxing consumption is the way to do it. But most of you would rather regurgitate rhetoric than look at the facts. You’d rather rail against government than sensibly debate what it should do and what it can do under the current tax structure. Our state government is cut to the bone, and I challenge you to find any waste that’s not tied to a CORPORATE special interest. Tax expenditures (exemptions) are simply ways to spend the money before it hits the coffers, but you don’t see that either. I swear, the more I read from some of you so-called “conservatives” the more I’m convinced that most of you are clueless. Any real conservative would see that changing our tax base to what we SPEND as opposed to what we EARN is flatter, fairer, and more attractive to business…but I guess they don’t serve that flavor of kool-aid at your meetings.
Jim
March 30th, 2011
12:54 am
Cutting services is one way of making our state’s revenues go farther. Cutting payroll by reducing staff (layoffs) is another way .. but parallel with less staff is less ability to provide services we need – NOT GOOD. Another way to cut payroll is to reduce salaries, but keep the same staff. “Cut their salaries and they’ll quit,” you say? Some of the more stubborn would quit, and mostly end up on the unemployment roles. The more intelligent ones would realize that a somewhat lesser salary is better than NO SALARY, and would stay.
Face it, folks. The economy stinks, and we don’t need to reduce the workforce, just the costs of goods & services. When companies can reduce their payroll, they can reduce the cost of their products and services. When it costs workers less to meet their needs, their reduced salaries will meet their needs.
And then the costs of our goods, as a national product, will be more competitive with the glut currently coming in from “over there.”
Afterdecker
April 1st, 2011
3:59 pm
Taxes — To infiniti and beyond!
As a resident and small business owner in Gwinnett County, I have recently learned of HB385, an intent by the State of Georgia to transition tax revenue by lowering income tax while raising taxes on the consumer. I understand the goal of attempting to make Georgia a more attractive climate to conduct business; the result is certainly unproven and in discord with numerous businesses and citizens, including this one.
This action is nothing more than an overall tax hike on the consumer that lowers taxes on businesses, with large businesses reaping the greatest benefit. I am opposed to this tax increase across the board, and even though some may position the tax as revenue neutral, it is impossible to calculate such a claim prior to its passage, and our elected officials know this to be true. Politicians potentially look at this 127 page tax increase as the Holy Grail of taxes, providing a creative way to siphon more money from the residents and small service businesses. I believe HB385 will have just the opposite effect by stifling small business growth from decreased sales. From pet owners to people who have lawns; from children selling Girl Scout Cookies to anyone needing a hair cut, our great state will TAX them all.
I have a rather creative idea that I would like to share. Cut state government spending. Cancel state income tax. Now that would be attractive to businesses. Initiate a flat tax across the board; something fair for everyone. This idea accomplishes the intent to reduce the income tax while making Georgia attractive to businesses and simultaneously passes the tax burdon directly to the consumer; which is the objective of HB385. The residents will remember the actions of our politicians when we cast our ballots. We elected our representatives for a reason, and it wasn’t to raise taxes on our fellow citizens during the worst economic times since the Great Depression.