The debate over changing Georgia’s tax system is quieter than usual at the Georgia General Assembly this year. Still, some efforts are afoot to push Georgia in a radical tax direction over time.
Two resolutions gaining traction would put new tax restrictions in the state constitution. Senate Resolutions 412 and 415, sponsored by Senate Pro Tempore David Shafer, are explained in our new fact sheet, “Tax Resolutions Could Put Georgia Lawmakers in a Bind.” They would put permanent caps on Georgia’s income and sales tax rates, with an exception to allow lawmakers to hike the sales tax only in order to cut the income tax.
These amendments are designed to serve as a first step toward drastic tax changes in the future. They would put Georgia on a gradual path to eventually eliminating the state income tax and offsetting the lost revenue with a much larger sales tax. Such a move, even if implemented over time, would likely raise taxes on most Georgia families, lead to deep cuts in essential public services and do nothing to boost our state’s fragile economy, as GBPI explained this summer in a comprehensive report.
Other state lawmakers are discussing a more immediate move to replace Georgia’s income taxes with a larger sales tax, perhaps as early as next year. For example, Sen. Hunter Hill recently suggested that Georgia eliminate its income tax by raising the state sales tax rate to “6 or 7 percent” and closing certain sales tax exemptions. GBPI analyzed this concept in partnership with the Institute on Taxation and Economic Policy (ITEP) in Washington, D.C., which operates one of the most widely respected “tax simulators” in the country.
To get specific estimates, we made a few assumptions about what the plan would look like. Specifically, we assumed lawmakers would:
- Hike the state sales tax rate to 7 percent
- Remove Georgia’s sales tax exemptions for groceries and prescription drugs, which advocates of income tax cuts often cite as potential sources of revenue
- Expand the sales tax base to include some personal services, such as auto repair and haircuts. (We did not extend the sales tax to business services, such as accounting and law, since tax experts agree that these services probably shouldn’t be subject to sales taxes)
If enacted, this hypothetical plan would shift Georgia’s taxes further onto those least able to pay, according to our analysis, while giving a big tax cut to those at the very top of the income ladder. Georgia families making less than $30,000 per year would pay more taxes on average, and Georgia taxpayers who make $30,000 to $51,000 a year would pay about the same in taxes as now. The top 1 percent of Georgians, a group with average incomes of around $1 million per year, would see a sharp drop in their tax bills.
Even more striking is the large state budget shortfall this scenario creates: $4.7 billion. Such a massive shortfall would lead to untenable cuts in public services, which means lawmakers would have to find some way to raise revenues. The two clearest options are to hike the sales tax rate even higher or eliminate exemptions beyond groceries and prescriptions.
Georgia would need a state sales tax rate of 9.8 percent to make this scenario revenue neutral, bringing the combined state and local rate to 12.8 percent in most counties, according to our calculations. And past experience from Georgia and other states suggests a large-scale elimination of exemptions for things like hospitals, universities and business purchases by farmers and manufacturers is politically unlikely, not to mention bad policy.
The push to drastically shift Georgia’s tax system in a new direction is still alive and kicking. But it’s definitely not a path Georgians want to go down.