It’s A Tax Code Change, But Is It A Tax Hike?

Below is my weekly column for the Courier Herald papers.

One of the most difficult topics that will consume Georgia legislators this year will be a proposal by the “Special Council on Tax Reform and Fairness for Georgians” to revamp Georgia’s tax code. The fact that our state faces an almost $2 Billion budget deficit during this same term – a budget that must be balanced by law – adds a degree of difficulty, and suspicion, to the Council’s efforts.

The goal of the commission is to create a fairer, broader tax base by eliminating certain exemptions while expanding the number of goods and services that are taxed. In exchange for adding taxes to things that are currently not taxed such as items purchased on the internet, private sales of automobiles between individuals, and most controversially, reinstating the state portion of the sales tax on groceries, the council proposes to cut the State’s income tax rate from 6% to 4% over three years.

The biggest opposition thus far has come from Grover Norquist, a man none of us have ever voted for, but who operates as if he has a veto power over tax proposals – because he often does. Norquist’s group, Americans For Tax Reform, has been quite successful in getting elected officials, mostly Republicans, to sign a pledge stating that they will never vote for a tax increase. Republicans facing primary opposition do not want to be labeled as “tax and spenders”, so they generally have used the opportunity for a quick press release certifying their hatred for taxes without much thought.

While it seems like determining what a tax increase is should be easy, it has often proven a bit more confusing. The Council on Tax Reform’s proposal will likely be the biggest test yet of Norquist’s pledge, as there is already significant disagreement on whether or not this is a tax hike.

Most of those whom I have seen criticize this proposal as a tax increase are limiting their analysis to the first year revenues brought in by the state, when the income tax will decrease from 6% to 5%. They do not want to look at the revenue offset during the next two years as income tax revenues continue to fall as rates move to 4%. Thus, they conclude, if the state earns any extra money from taxpayers collectively, then it must be a increase, and therefore must be opposed. I find this method of thinking arbitrarily limited, and frankly, intellectually dishonest.

The Tax Council and those who support their plan would do well to invoke the language used to support the FairTax (a movement to replace the income tax with a national sales tax) as they try to sell this plan to the legislature and ultimately the voters. The goal is to tax those who currently avoid tax, and to broaden the tax base to limit the effects of government taxation on the free market. Thus, if more people are taxed, but each (or most) face a lower tax burden, then it is hard to argue that the individuals and the state are better off.

The goal of the opponents is to cap the amount of money going to government, so as to limit its expansion. I can understand and accept this goal to a degree. But these same folks usually use supply side economic arguments for tax cuts, claiming that income tax cuts will increase tax revenue. Either they don’t really believe income tax cuts grow the economy sufficiently to increase tax revenues, or they believe that additional revenue for the government is OK in some instances, but arbitrarily reject the temporary increase in year one government revenue in this plan based on the need to be against something.

I personally have not had time to analyze the proposal of the council to determine if I support their changes in total, but I have had time to reject the “Government by platitude” nature of Norquist’s tax increase claim. There will be a serious debate over the next four months over this bill, and an adult conversation is required. We must urge our legislators to resist government by sound bite, and instead, vote based on the path that is sound public policy.


  1. PARpat says:

    Nobody has taken the time to analysis the long term effects of the Council’s report, therefore it is impossible to determine if this is a net tax increase after all the rates are reduced and all the exemptions eliminated. However we do know that if you buy cigarettes, gasoline, groceries, have retirement income, get your haircut, buy insurance or a variety of other services, then you will experience a tax increase.

    • B Balz says:

      Thank YOU!

      Last year, when I spoke about FAIR spending, I was roundly chastised, that spending has nada, zilch, zero to do with revenue collection. Whatever. In business there are two options to increased EBITDA; wither/or lower expense, raise revenue.

      There are some very large departments in the State budget. DOAS, DCA, come to mind. I know there are really good folks in ALL of our State departments, as well, inefficiencies that can only survive in the Public sector.

      That said, our current tax (revenue) system is based on a 1950’s agricultural State, and seems to be systemically incapable of supporting our government.

      The Speaker-whose-name-I-shall-never-type-again worked on Plan similar to the one now proffered by the able Council. Until the language ‘anticipation of reducing income taxes’ is replaced with ‘concurrent to reducing income taxes’, read my lips: This is a TAX INCREASE.

      • Jeff says:

        How about we all get behind Rep Buzz’s HR 20, a Constitutional Amendment to limit spending to inflation + population growth (and that allows a 2/3 majority of both chambers to override when truly needed)?

        We need reform on BOTH sides of the Budget, but this “recommendation” from the Tax Reform Council is simply this:

        a $1 BILLION tax increase.

        • Colorado already tried TABOR and it failed miserably. We are already required to balance our budget, that should theoretically lock in inflation+population growth or a tax increase. I’d prefer to give future legislatures the ability to raise taxes if they decide that’s the route they want to go instead of arbitrarily aligning themselves to the spending priorities and tax system in place by the current legislature when a TABOR passes.

          • Jeff says:


            Rep Buzz’s bill DOES allow the Assembly to break through it – with the very same majority needed to place a Constitutional Amendment on the ballot, which happens every 2 yrs that I’ve been looking (since 04-06 or so). In other words, every single Assembly since the GOP first began to control State Government has voted on at least one bill with a strong enough majority to break the cap that year per HR 20. IIRC, Colorado’s bill didn’t have such a mechanism.

          • Strictly speaking it’s not a TABOR it’s a TEL….a Tax Expenditure Limitation. It’s different that what Colorado did for the reason Jeff mentioned (thanks for the kudos Jeff) and also because we don’t seek to limit local spending. TABOR as implemented in CO also capped local spending.

            Personally I hope local governments will adopt a similar measure but I don’t think State government should mandate it. If local governments choose to spend at a faster rate than what my bill would require, then let them make that case with their voters.

  2. rebelyelp says:

    The intellectual dishonesty here is not coming from hard core fiscal conservatives, but from RINOS and Dems who use every budgetary trick in the book to spend and borrow more while claiming austerity.

    If the tax council didn’t want to be criticized for proposing a tax increase, they shouldn’t have proposed one. I fully agree that we need to lower rates and broaden the base. We can do that in a revenue neutral manner in year one. If there is a deficit, cut more, period. I myself would prefer an actual reduction in tax revenue, but I’d settle for a revenue neutral plan.

    And I’m absolutely opposed to a tax increase, period. This is especially in “year one” because we are still in a recession, and need lower taxes to aid the recovery. Any Republican that votes for a tax increase this year should face a contested primary in 2012.

    • Harry says:

      Absolutely correct. And Charlie, just because “no tax increase” is a simple concept, doesn’t make it a “sound bite”. Let’s see if our legislature can find it possible to cut $2 billion from the budget, because despite all the smoke and mirrors that’s what they have to do if they intend to keep their pledge. Playing deferred accounting tricks as in California and Illinois is not fiscally responsible, and we conservatives and libertarians need to make sure that if the GOP leadership triangulate and play games with Democrats and lobbyists – then they get lose our votes. Let’s find out if they can win without us. Trust but verify.

      • B Balz says:

        AJC ran an article describing how “fees” that were collected for various programs such as, used tire disposal, 911 call centers, updated unlined land fills, have been DIVERTED to the State general fund.

        The article indicates Rep. Harbin’s view as ‘lawmakers can’t guarantee fees like those for the solid waste and hazardous waste trust funds will go for their intended purposes unless they are “dedicated” to those causes in a constitutional amendment.’ [Quotes added].

        The people spoke loudly in November, and I wish to remain confident the lawmakers are listening.

        h/t AJC:

  3. KD_fiscal conservative says:

    It’s important to look at who is going to affected by these tax increases. If the majority of the “base”, or people who voted these Republicans into power, don’t see major detrimental financial effects(and possibly see net tax decreases from lower income taxes) by the proposed tax code, and if the state Republican leadership is able to convince the base that they “aren’t really increasing taxes on YOU, but are instead increasing the tax base on those other people,” then this plan to increase revenue is strategically favorable, and most of the leadership should do fine next election, despite the whispers of disapproval from the ever present “whoo-ha’er.” Remember, its not about how policy decisions effect the population as a whole, what’s most important is what changes do for/against those who voted FOR any given individual elected official, which is rarely, if ever, representative of the population. Plus, these elected officials will have an “incumbency advantage” for whatever that is worth. Additionally, if they are able to pass laws that are widely popular among this “base,” such as policy against illegals(doesn’t matter if the policy actually reduces illegal immigration, this is largely a ideological issue), they will further strengthen their re-election campaign.

    But then again, what do I know, tax increases of any kind can come back to bit some of the legislators at a later time, and make for great commercials during future election seasons (for ex., remember the attacks against Keown for voting for a state budget containing certain tax/fees increases).

    Personally, I will be pissed if they tax items bought on the internet, especially considering they already eliminated the tax holiday. I get most of my electronics online, and appreciate not having to pay taxes on those items.

    • Harry says:

      The supreme court said it is unconstitutional (commerce clause violation) to require vendors not having nexus in a given state to collect and remit sales tax on sales to purchasers in said state, delivered by common carrier; and it is impractical on the part of a local jurisdiction to require purchasers of small-ticket items delivered to said jurisdiction to self-assess and remit sales tax on such items. That’s the state of play.

    • Charlie says:

      Regarding taxes on the internet, none of us like paying taxes.

      The goal of any tax system is that a tax should be broad based and low, so as not to create distortions in the market while the government raises the revenue it needs.

      When you decline to tax internet sales, you are essentially subsidizing out of state businesses at the state of local business, as any biz with a Georgia physical presence is already required to collect sales tax on an item sold, via internet or not.

      Thus, the current tax system penalizes businesses that invest in Georgia. We may not like the fact that this loophole may be closed, but business that have invested here don’t like the fact that Georgia’s current tax code essentially subsidizes their out of state competitors, either.

      • Charlie,
        Isn’t the “loophole” a wash, if every state continues the internet sales tax moratorium? Companies located in our state can sell on line to all the other states (tax free), right?

        But again I’d like to reiterate, neither one new tax nor any percentage of a percentage increase should be put forward until spending on every non-essential, non-truly government need is addressed. In other words, as long as spending continues on things like “Go Fish,” those that want to raise our taxes can “go to hell.”

    • B Balz says:

      I am curious about how others feel about the veracity of this remark:

      “…Remember, its not about how policy decisions effect the population as a whole, what’s most important is what changes do for/against those who voted FOR any given individual elected official, which is rarely, if ever, representative of the
      population. …”

        • KD_fiscal conservative says:


          We are learning about “representation” in our leg. process class, and that was my conclusion based on “who feels like they are being represented by their elected officials” and “who is going to to keep these officials in power.”
          In other words, the new tax code is, in my opinion, is largely favorable in terms of “re-election” stratgey, and therefore will, atleast in part, be approved by the Republican state legislators; espicially is some type of additional taxes seem inevitable.
          If the new taxes are economically a good idea, or if you personally like them or not, is another matter.

  4. John Konop says:

    Back to the real world, at the end of the day we have massive liabilities that we owe on a state and federal level. And pension liability is the biggest issue especially healthcare.

    And unless we do something bond holders and many retires we be left with very little.

    This year’s budget is just the tip of the iceberg of future liabilities. It is time for a real adult conversation about tax policy as well as spending.

    Your morning jolt: Let states declare bankruptcy, says Newt Gingrich

    Say you’re the governor of a large Southern state and the pensions that you and your predecessors have promised are killing the bottom line.

    Bankruptcy for states should be an option, says former U.S. House speaker and possible 2012 presidential candidate Newt Gingrich.

    • B Balz says:

      If Georgia defaults on its’ retirees, bondholders and bankrupts, much else of a far worse nature has already occurred. The economy would be ruined, hyper-inflation would be current, jobs non-existent.

      I truly believe, and have stated many times before, worst cases rarely occur. Even this Great Recession is waning now.

      That said, Mr. Konop is correct, we must discuss when we are going to fund, at a bare minimum, the health care portion of our State pensions.

      • Charlie says:

        I was assisting one of my new collegues at the Baldwin Bulletin this morning on this same topic. Millegeville GA has one of the highest concentration of state employees, as they are home to various state institutions/employment centers.

        The fact of the matter is, Pew Research has Georgia in the top 1o states with respect to pension liabilities, and Georgia is also among a smaller number of states that maintain a AAA bond rating.

        Thus, relatively speaking Georgia will be among the last of states that can’t meet its pension obligations.

        Given the extremely high percentage of the elderly that vote, I don’t see a pension default as likely, and if it became within the realm of possibility, I would be many other programs would be cut/taxes raised before a pension obligation was touched.

        • B Balz says:

          If memory serves correctly, “Pew Research has Georgia in the top 1o states with respect to pension liabilities” is broken down into two categories.

          Health Care

          For the pension portion of the Pew study we are very close to having an actuarial ‘funded liability’. I seem to recall the health-care portion of the pension is less rosy. If correct, that needs to be addressed as soon as practical.

          Due to the time-value nature of these things, every year that an unfunded liability exists, it grows exponentially over time.

          In this tough budget year, health care pension liability funding may be a ‘should-do’ instead of a ‘must-do’, but the sooner the better.

          • KD_fiscal conservative says:

            Question to active “tea-party” folks:

            Will the tea-party create a similar raucous about the tax increases proposed by our state Republicans as they did about the potential tax-increases from the Democrat Congress?

  5. analogkid says:

    This proposal is dead in the water. The R’s think it’s a tax hike and the D’s think it’s a regressive tax.

    It could very well be both.

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