State lawmakers can seize a real opportunity to improve the lives of Georgia families if they take up the topic of comprehensive tax reform in the next legislative session. First, they’ll need to discard misguided plans to slash income tax rates and raise sales taxes that make pending tax proposals untenable.
Reforming Georgia’s outdated tax system is a perennial hot topic at the state Capitol. The debate could be coming to a head, as legislators appear poised to take up House Bill 445, a multi-part tax proposal state Rep. John Carson, R-Marietta, unveiled early this year. Among the proposed changes are a drastic cut to Georgia’s income tax, a higher state sales tax and a return of state taxes on groceries. Some provisions, like raising Georgia’s bargain-basement tobacco tax, are worthy of broad support.
But the bill as a whole needs fixing. It would shift the cost of government further onto low-wage workers and the middle class, while harming core state services like education and public safety. Better options exist.
The heart of the plan’s approach is to slash Georgia’s personal and corporate income taxes and try to recover the lost revenue with higher sales taxes. That hits the average Georgian with a double-whammy and leaves many families worse-off. Why? Typical Georgians are likely to pay more in taxes in exchange for fewer services.
Higher sales taxes hit middle- and low-income families hardest, since they use most of their income just to get by. That would prove especially true if lawmakers eliminate Georgia’s state-level exemption for groceries, which former Gov. Zell Miller ushered through the Legislature in 1996. On the other hand, most of the value of income tax cuts flows to wealthy households and corporations at the top. Most working families would likely gain too little from income tax cuts to offset higher sales taxes.
The quality of state services could also deteriorate as a result of a tax shift, further compounding the harm to average Georgians. Carson’s plan will cost the state treasury an average of about $800 million a year in the five years after its passage, according to the state’s official estimate that assumes lawmakers approved it in 2015. That’s more than double Georgia’s annual technical college budget.
It is not surprising the plan would blow such a big hole in Georgia’s budget, given the track record of similar plans in other states. Kansas adopted one of the largest state income tax cuts ever in 2012 and tried to make up some of the shortfall through higher sales taxes. The net result: Bone-deep cuts in schools and local services paired with a damaged credit rating that costs the state treasury additional money through higher interest payments.
In 2013, costs for a similar plan in North Carolina led to sweeping cuts in that state’s vaunted university system as well as support for other community assets. “It’s one thing to be frugal about government budgets. It’s another to give money away in tax cuts when the state is falling short of meeting its needs,” stated a Raleigh News & Observer editorial.
Georgia, meanwhile, can blaze a better path. Lawmakers can explore more targeted reforms, like raising the standard deduction or creating a state Earned Income Tax Credit. Both cut taxes from the bottom up rather than the top down. They can safeguard the state’s investments by offsetting any new tax cuts with a synchronized scaling back of outdated tax breaks and deductions. The Georgia Budget and Policy Institute will unveil its detailed state tax reform blueprint later this month as one sensible alternative for lawmakers to consider. I hope others will bring worthy ideas to the upcoming debate.
One thing is for sure: A drastic shift from income to sales taxes is a flawed approach to reform.
Georgia can do better.
For more information, read our full report on this issue.