Sharing Some Tax Ideas with the Georgia Senate

Last week I testified before the special Fair Tax Study Committee of the Georgia state senate, which is charged with reviewing whether a drastic shift from income taxes to sales taxes is a good idea for Georgia. As the Georgia Budget and Policy Institute (GBPI) explained in a recent report, there are several key reasons why deep cuts to the state’s income tax would likely harm Georgia’s families, businesses and overall economy.

The senate committee members graciously heard our presentation and asked a variety of questions about our recent report, such as how we reached our conclusions and what alternatives to slashing the income tax we suggest. A few excerpts from my remarks are below, and you may also review the written testimony in full here.

Dispelling the economic boon myth

“Some have said that the nine states without income taxes had much stronger economies over the past decade than income-taxing states. But this claim overly relies on only a couple of measures that make no-income-tax states look superior, while ignoring a wide variety of other economic indicators where income-tax states perform just as well, if not better, than their no-income-tax peers…Income taxing states over the past decade had on average slightly stronger economic growth per person, smaller declines in household income and the same average unemployment rate as states without income-taxes. The comparison holds true even if you look only at the nine highest income tax states, which as of 2012, also have better wages, fewer residents without health insurance and more Fortune 500 companies on average than the nine no-income-tax states.”

Explaining the risk to low- and middle-income Georgians

“In GBPI’s recent report…we determined that any plan [that drastically swaps income taxes for sales taxes and is] capable of being revenue neutral would likely raise taxes on a majority of Georgia households, while giving those at the very top of the income scale a significant tax break…. Other states exploring [similar tax shift plans] haven’t been able to crack the code of how not to raise taxes on most families[Legislation passed this year] in North Carolina, for instance, is scheduled to raise taxes on an estimated 80 percent of North Carolinians, or most households making less than $84,000 per year. In all, the top 5 percent of North Carolina taxpayers will receive 90 percent of the benefit from that final plan.”

Raising the specter of deep budget cuts

“Based on evidence from other states, [a tax shift plan] could critically harm Georgia’s state budget and, by extension, weaken lawmakers’ ability to fund the public investments that businesses, families and Georgia’s economy rely on…. The recently enacted plan in North Carolina, for example, is scheduled to cut more than $650 million from the state budget, which adjusted for population, is roughly equivalent to cutting $700 million from Georgia’s state budget. In Kansas, which has pursued the most aggressive version of the tax shift concept, a pair of tax bills passed in 2012 and 2013 will withdraw about $600 million per year from that state’s budget, which would be equivalent to cutting about $2.1 billion from Georgia’s budget.”

GBPI looks forward to further contributing to the debate over potential tax reform in Georgia. The bulk of recommendations in our 2010 proposal for fair and adequate tax reform still apply, and our more recent “revenue menu” report shows how lawmakers could strategically raise new revenues without overburdening Georgia families and businesses. Whether it happens tomorrow or in coming years, it is essential for Georgia lawmakers to create a fairer, more balanced and more adequate tax system that collects enough money to invest in a stronger future.