Don’t expect Tax Reform 2.0 legislation to pass out of its joint House-Senate committee this afternoon. At best, we’ll have some of the details in writing.
Here’s the strategic problem now facing the measure:
Because of the way the process was structured last year, once the bill is passed out of the joint committee, the legislature is engrossed and can’t be changed by either chamber. Which means that vote counts on both sides have to be solid before the legislation begins to move.
But we’re discovering some extreme reluctance – especially among Senate Republicans – to commit to anything that hasn’t been set down on paper. We couldn’t find a single GOP senator willing to line up behind the measure, which promises a 25 percent reduction in the personal income tax rate in exchange for sales taxes on satellite TV, casual car sales and – for the first time – a sales tax on the labor in auto repairs.
“How do you whip a vote on something that’s not in writing?” one longtime Senate observer said. And remember that the Senate stripped Lt. Gov. Casey Cagle of his power over the chamber in part because of his arm-twisting on the hospital bed tax last year.
This year, any arm-twisting will have to come from within the caucus.
One Republican senator we spoke with said the claim of “revenue neutral” won’t be enough – he would have to know which Georgians will be paying more taxes, and who won’t. One concern is over what deductions are removed, and which ones stay in.
Another said senator said he was not about to be compared to the Democratic Congress that passed health care reform without reading the bill.
The only one who would be quoted on the record was former Senate president pro tem Eric Johnson, who was checking in with old colleagues on Monday – sporting a lobbyist’s badge.
About the tax overhaul? “The devil’s in the details,” Johnson said. “But Republicans have been advocating a consumer tax for years. If they’re moving in that direction, they’re moving in the right direction.”
Georgia Public Policy Foundation has a quick analysis by Kelly McCutchen that makes one think that they’ve seen the details — which include a $17,000 limit on income deductions. That’s for mortage interest and charitable gifts.
There is a concern that limiting itemized deductions might limit charitable deductions. We believe this is unlikely. First, we believe that most people donate because they support the charity, not to receive the tax deduction. Second, if they are motivated by the tax deduction, the impact of the state income tax deduction is minimal compared to the federal tax deduction. Third, the top marginal rate was reduced by 22 percentage points during the Reagan tax reforms, but charitable donations increased despite this large disincentive. What drives charitable giving is economic growth – and that is the goal of this tax reform.
Without access to actual Georgia tax return data it is very difficult to get precise estimates, but we are able to make some general projections based on aggregate data. Under this new plan, our projections show everyone who takes the standard deduction on their federal form will be better off. For itemizers, it depends on the amount of itemized deductions and their income level. Our best estimate is 85 percent of Georgians will pay about the same or less under this proposal than under the current income tax code.
The communications lobby has thrown itself into high gear. Over the weekend, cable TV and telecommunications companies – which are already taxed on the service they provide – released a poll that indicated strong GOP primary support for a shift to consumer taxes. And for a move, for the first time, to include satellite TV under that umbrella.
Dish Network and Direct TV, meanwhile, say they have directed 30,000 e-mails to state lawmakers protesting the new tax.
Rural legislators may hold the key. Within the satellite TV industry, 42 percent of the customer base is considered rural. One would also assume that casual auto sales are more important outside big cities as well.
If action on the tax overhaul is to be completed by Friday, when the Legislature dives into a break more than a week long, the House-Senate committee would have to pass the measure out by Tuesday, or possibly Wednesday. That would allow the House to vote on the matter Wednesday.
Should it pass the House, the Senate would require three readings before it could consider a final vote on Friday.
- By Jim Galloway, Political Insider