Trickle Down Deficit Reform

Today’s Courier Herald Column:

On Tuesday, the Commissioners of Gwinnett County Georgia voted to impose a 1% tax on energy used by manufacturers.  The move will likely be regarded by many as a tax increase.  It runs counter to the State eliminating sales taxes paid by manufacturers on energy as part of last year’s tax reform package.

And yet, it is that “reform” that moved Gwinnett County into action.  The county currently collects 2% in sales tax on energy as part of all sales taxes paid.  As with all other sales taxes, the state collects 4%, and local governments then collect between 1 and 4 percent across Georgia.  Gwinnett’s sales tax rate is 2%.  In short, Gwinnett’s vote to “raise” taxes on manufactures is still a cut by half of the amount the county receives from manufacturers.  It still presents a picture of a local Republican led county raising taxes while a Republican state legislature cuts them.

Meanwhile, Republicans at the state level will be grappling with Medicaid expansion and a “hospital bed tax” which must be renewed next year if the state is to continue to maximize its federal reimbursement for Medicaid expenses on current enrollees.  Georgia currently receives between 66% and 76% of Medicaid expenses from the Federal government.  The rest is paid by state taxpayers.

Under Health Care reform, Medicaid is proposed to add many current uninsured Georgians to the roles of those with health care coverage.  The federal government pledges to cover all Medicaid expenses born by the states for the first few years, and 90% of the cost thereafter.  State leaders are currently balking at the expansion, citing the increased cost to the state.

While recent reports from the Kaiser Family Foundation indicate the state would receive $33 Billion for health care over the next 10 years from the additional members, the state is skeptical.  According to the Atlanta Journal-Constitution, Governor Deal’s budget office estimates the cost to Georgians to participate in the program would be $3.7 Billion through 2022 – IF the federal government keeps its part of the bargain.

And therein lies the rub.  Governments are good at creating new programs with rosy scenarios of cost.  When budgets get tight, the costs are then passed along to lower jurisdictions.  Politicians love to take credit for tax cuts, but budget cuts, when they happen, often reflect cost shifts to lower levels of government.  The feds send unfunded mandates to states.  States are finding new ways to have local governments provide services and/or hold up fee revenues earmarked for counties and municipalities in order to shore up holes in the state general fund.

The Gwinnett tax “increase” is but one small example of local governments who must continue to find ways to deliver services while the state government reduces the amount being sent to them.  The state, engaging in the practice itself, understands the fear that one of the never-ending federal “grand bargains” on deficit reform will eventually move the high cost of Medicaid reimbursements on to the states.

There was a time when many of the solutions to tackle bloated federal bureaucratic programs was to provide block grants to states.  The political reality of future scenarios is more likely that states will pick up more and more responsibilities but without federal funds attached to them.  In an era where the federal government borrows almost all of its discretionary budget, the “cuts” in spending are just as likely to be more transfer of responsibility to states without funding attached.

The only thing that can be held certain in this game is that fingers will be pointed all around, but your property taxes and possibly sales taxes will be going up over time.  The federal government will pass more costs along to the states for services it currently funds with deficit spending.  States, which must balance their budgets, will pass the favor along to local governments.  Local governments will squeeze what they can, but will likely have to pass some of the costs on to taxpayers.

One comment

  1. Good post Charlie,

    I can tell you in my County we have been examining what to do with the sales tax on energy. The State Revenue Department is unable to tell us how much money we would lose if we were to eliminate it completely. How do you plan a budget and do something like this? It is impossible to do. You want to get rid of it and make your County attractive to manufacturing and Economic Development but you have no idea if you are going to have to raise the millage rate the following year to compensate for the loss of revenue. It seems as though the Legislature makes headlines eleminating the sales tax on energy used in manufacturing but it falls on us to actually do it on a County level and hope we don’t go broke doing it.

Comments are closed.