Last week, Speaker Richardson spoke at a meeting of the Georgia chapter of Americans for Prosperity. He came to pitch is tax reform proposal which he dubs the GREAT plan – Georgia Repealing Every Ad-Valorem Tax.
[updated to add:] I want to offer Kudos to the Speaker and the house for taking on such an ambitious project. While I’m not a fan of the current plan, they do deserve credit for trying to do something – which is more than could be said for our Republicans in Washington.
It has gone through several iterations since I started following the plan. The current version calls for a uniform state-wide 4% sales tax on goods and services, and the repeal of all property and ad-valorem taxes. This would include all local property taxes. Localities would be allowed to keep any existing SPLOTS, ELOTS, but otherwise would not be able to set their own sales tax rate.
The plan would make up the lost property tax revenues by eliminating all exemptions from the sales tax, and require service providers (doctors, lawyers, barbers and the guy who cuts your grass) to collect the 4% sales tax. My understanding is that this would then be revenue neutral.
So whats good about this plan?
Well, first off the state would stop taxing wealth without income. The Speaker made a big point about how unfair property taxes can be when you have a valuable property that isn’t generating any cash, and how the property tax bill can be a big surprise in the fall.
The plan would allow for a refundable credit for groceries and prescriptions. This would keep the no-exemptions rule in place while offering a break for needy families.
It would require all xLOSTs to pass with a 2/3rds majority on the referendum. This is good. What is really needed is legislation prohibiting counties from holding the xLOST referendums at odd times when turnout is significantly lower.
Finally, it would eliminate the 1200 plus different taxing entities a business has to file with. There would be one filing with the state thereby reducing the burden on small businesses. This is especially important when doing business on the Internet.
Whats wrong with the plan.
First off, in my opinion, is that it doesn’t lower or eliminate the income tax. In fact it will make tax filing that much more complex as you’ll have all these refundable credits to wonder if you qualify for. Earlier versions of the plan called for a 4% income tax cap, but I guess they decided those would be too politically difficult to pass.
A refundable tax credit on prescription drugs means that the Department of Revenue would start collecting data on what drugs you take. I’m not too keen on that privacy violation.
It implements double taxation on services. The service provider would have to collect and remit the 4% sales tax and they would pay the 5-6% state income tax on the same money.
Of all the taxes on the books, I think the property tax is the one people care the least about. Most people have their mortgage company escrow their property taxes so they are never hit will a surprise in the fall. The car tax is more unpopular and has popular support for a repeal.
Finally while mandating a statewide 4% sales tax would help curb tax abuse by big spending municipal governments, it would also prevent fiscally responsible counties and cities from lowering their sales tax rates to attract business, shoppers and residents. While this doesn’t violate the concept of Federalism per say, it does fly in the face of the concept of local control and the ability to experiment in public policy.
The biggest objection to the plan – that the state house would get to decide how much money each county gets is incorrect in my opinion. While the state would collect the taxes, the money would be earmarked as belonging to a specific county based on where the sale took place. The only issue would be if our Democratic Governor decided not to deposit the checks
for political reasons.