Today’s Courier Herald Column:
The legislature’s joint special committee on tax reform awoke from what had been an apparent slumber to produce a significantly scaled back tax reform package on Monday. The bill passed the 180 member Georgia House on Tuesday with just 9 opposing votes. Clearly, the committee was not asleep but was just oiling up. A significant amount of grease is required to get a relatively controversial bill through the legislature with virtually no opposition.
The bill has winners and losers, and it being billed as an overall tax cut based on the fiscal note prepared to support the bill. Over three years, the package is projected to produce a net $88 Million in savings for Georgia taxpayers in payments to the state. This is accomplished by producing sales tax holidays in 2013 and 2014. In year 2015, the bill is expected to collect more state revenue than it cuts.
The sales tax holiday was discussed around the capitol as the way to help Georgians accept the expanded collection of sales taxes on internet purchases, with legislators saying they were looking at making the sales tax holiday permanent. “Permanent” for the cut means through 2014. “Permanent” for internet sales tax collection means “forever”.
And, of course, there are large ornaments hung on this Christmas tree legislation by lobbyists and the well connected. Chief among them is a new tag transfer fee of 7% of the purchase price that will be charged in place of sales tax every time a title is transferred in the state. The holy grail of the car dealers’ lobby, this would apply not just to sales by licensed dealers but also to private auto sales between individuals.
The bill would also eliminate ad valorem taxes paid on individual’s birthdays every year. While a tax cut for consumers, it is also a large cut of revenue for local governments, growing to $150 Million per year in 2015. Lawmakers promise the state will replace lost local revenue from the general fund. Lawmakers also gutted a bill last week that would have ensured local governments received fee revenue collected by the state intended for them but held for other uses in the general fund. Any local government relying on this promise for future revenue needs a history lesson in how the Georgia appropriation process works.
The “jobs” component of this bill is the elimination of sales taxes paid on energy by large manufacturers. Neighboring states do not charge this tax, and economic development officials often cite this fact as part of their struggle to land new employers for Georgia. While it does look like yet another gift to Georgia Power, the reality is that sales taxes are generally used as taxes on final good sales, and energy is a cost of the manufacturing process. Thus, as a cost of production for goods that will ultimately be charged sales taxes again, the current tax structure does represent double taxation similar to how a VAT would work. It’s a good cut.
Individuals who are married also receive a large income tax cut, as personal exemptions are gradually increased. The $150 Million per year tax cut by 2015 is the largest line item cut from the state’s coffers, and is roughly equal to the amount local governments will lose from cutting tag taxes.
Smaller items in the bill include an extension of exemptions for jet fuel taxes for certain airlines (Delta says “thank you” and would like you to remit a $25 “thank you” fee), expanded sales tax exemptions for products used in agriculture production, and the elimination of sales taxes on construction projects that have “regional significance” (The Atlanta Region Falcons “thank you” for this and the other $400 Million of tax dollars you’re about to give them for a stadium that will be used 8 days per year).
On balance, the bill is neither a huge tax cut nor increase. It is significantly smaller in scope than the original goals established when the project was conceived. There are winners and losers, with local governments bearing the brunt of lost revenue. Thus, state lawmakers will be taking credit for a cut, and local lawmakers will have to ensure they can balance their budgets within current millage rates or face the ire of voters as they raise taxes to replace lost revenue. Adding to their degree of difficulty are continuing falling home prices, further cutting their tax base.
The biggest opposition to the bill thus far has come not from within the legislature, but from the TEA Party. TEA Party Patriots member Debbie Dooley has been actively criticizing the move to reveal the bill to the public only a day before it was passed out of the House, calling it a Nancy Pelosi like move. While connected insiders were clearly consulted on the bill’s contents, the public was not. Consider this yet another log on the fire of TEA party members further motivating primary challenges in July.