Tax Bill Takes Small Steps in the Right Direction

More Work Needed to Achieve Comprehensive Tax Reform

The omnibus tax bill passed by the General Assembly this week, HB 386, is not perfect, but it is a small step in the right direction.  Overall, the bill is a (mostly) prudent package of tax changes, including some important reforms that will help the state invest in future economic prosperity. We hope it is a predecessor to the comprehensive tax reform that Georgia badly needs.

Read GBPI’s full analysis of the bill

The bill rejects the reckless tax-cutting of recent years in favor of a more measured approach that acknowledges the importance of revenues to creating jobs and building a strong economy.  Recent tax proposals have cost hundreds of millions of dollars, but this legislation has a more manageable price tag and may even increase revenues over time.

Though this bill will cause an estimated $86 million deficit over the first two years, it seems likely to increase state funding long-term, perhaps considerably. This initial shortfall means Georgia will have to endure further cuts to critical state investments in the next few years, but over the long term, the revenue generated by the bill could help Georgia more effectively meet its growing needs.

The package also includes some promising tax policies GBPI has advocated for previously, including:

These are noteworthy victories that should help stabilize Georgia’s fragile fiscal house, while also generating funds for important investments that grow the economy and create jobs, such as education and infrastructure.

Conversely, the bill certainly has some flaws.  It revives and expands Georgia’s sales tax holidays, despite the fact that the Special Council on Tax Reform and researchers from across the political spectrum have shown them to be bad tax policy. It creates a new tax break for jet fuel, which rewards one specific industry with a subsidy that will do nothing to grow the economy or create jobs. It provides a tax cut to all married couples – regardless of whether they suffer the “marriage penalty” or not – and it takes a leap of faith on an unproven system of car taxes.

Most importantly, the bill falls well short of the far-ranging changes proposed by the Special Council on Tax Reform and Fairness for Georgians, which recommended large changes to the state’s tax system.

HB 386 should not be confused with comprehensive tax reform. The state’s tax system remains relatively unchanged since the 1950s, and it no longer serves the needs of a rapidly-growing state. Georgia’s outdated mixture of income, sales, and other taxes fails to bring in the revenue Georgia needs to succeed, and it imposes an unfair burden on Georgians of moderate or meager means.

With or without the bill passed this week, Georgia still needs comprehensive tax reform that resolves these fundamental challenges and brings the tax system into the 21st century. Legislators deserve credit for their measured approach this year, but this tax bill must be viewed as one small step forward – not as a completed job.  Only through a modern tax system that increases revenues can Georgia reverse the bone-deep cuts of prior years and invest in critical areas like education that grow the economy and create jobs.

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2 thoughts on “Tax Bill Takes Small Steps in the Right Direction”

  1. Pingback: » Bill Analysis: House Bill 386 (LC 34 3484S) | Tax Package

  2. Pingback: 2012 Legislative Session Ends with Some Promise, Yet Missed Opportunities | Georgia Budget and Policy Institute

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