Georgia’s Working and Middle Class Face Nearly Double the Tax Rate of Top 1%

A new study from the Institute on Taxation & Economic Policy (ITEP) analyzes the tax structures of all 50 states and finds that Georgia’s richest contribute a much smaller share of their income to state and local budgets than the rest of the state. While the richest 1% of Georgians (those making over $432,000 annually) pay 5% of their income in state and local taxes (including sales, income, and property taxes), the combined bottom 80% of Georgians (those making under $82,000 annually) pay nearly double that, sending 9.8% of their income to the state and locality. The lower one’s income, the higher effective tax rate – those in Georgia making under $16,000/year pay 10.4% of their earnings in state/local taxes.

Georgia's State and Local Combined Tax Rate by Income
One common feature of the states with the most regressive tax systems is a high reliance on sales taxes, combined with a non-existent or completely flat income tax system. This makes sense when you look at the effective tax rates that Georgians face in sales tax and income tax. Sales taxes fall primarily on the poorest Georgians, with the bottom 20% paying 8.5x more of their income than the top 1% in sales tax – something worth remembering when considering the Transportation Joint Study Committee’s policy option to hike the sales tax and more extreme proposals to eliminate our state income tax entirely.Georgia's Income and Sales Tax Rates by Income

The ITEP report also found that local property taxes in Georgia contribute to poorer Georgians paying a higher share of their income than their wealthier counterparts – the bottom 20% of Georgians pay about 1.8x as much of their income in property taxes as do the top 1%. Property taxes have risen in prominence under recent years of state education funding shortfalls – most districts have raised rates since 2008, and ITEP found that property taxes made up 21.6% of Georgia’s combined state and local budgets in 2012, up from 18.2% in 2000.

38 comments

  1. Max Power says:

    Why oh why do we still have property taxes. Property taxes are a legacy of a time when property=income, we have an income tax now so why not abolish property taxes?

    • benevolus says:

      I think it’s because a mix of taxes is probably a more stable revenue stream. Different types of taxes fluctuate differently under various circumstances. If we had all our eggs in one basket (or two) the revenue stream would likely be more volatile than it is, which makes planning hard.

      Just an amateur opinion.

      • saltycracker says:

        The reason the property tax wasn’t as volatile as it should have been in the recession was the county’s refusal to properly appraise property and they still don’t in areas they can’t do drive by shootings (comps). Incompetent/incapable more than illegal.

        It is a bad tax particularly on the cash strapped and renters in properties that don’t qualify for homestead.

    • Alex Rowell says:

      I think another reason for property taxes sticking around is that it provides a local source of revenue that’s hard to evade. If localities just went with sales taxes, you would have people on the borders slipping across to different cities/counties with lower tax rates to buy things, then heading back to their home locality and using local government services.

      • saltycracker says:

        That certainly explains the Fulton Co. Residents swarming into Cherokee Co. to buy.
        🙂
        Reality would suggest the spread would have to be more than any probable variance in GA.

        Taxing something not involved in a trade/monetary exchange is harmful. Real wages have not kept pace with property tax increases over time nor should we have a tax system requiring one must improve their income.

        • saltycracker says:

          PS
          The trademark of Fulton/Cherokee was their sales tax variance.

          As for property tax:
          If you have to go after property then tax the transaction, freeze annual taxes at the transaction/improved value, impose impact fees as the developed property will drive public cap costs or any other scheme to get a piece of the action of a monetized exchange.

          But to come up with a tax formula based on what might be paid or someone else paid in very different times, conditions and circumstances……insane.

  2. saltycracker says:

    Reads like the folks on the lower end of the income scale should be the first to support a flat tax approach that involves income and eliminates property tax.

    • Alex Rowell says:

      Problem here is that Georgia’s income tax *rates* are effectively flat already: you’re in the top tax bracket of 6% if you make over $7,000 individually or $10,000 filing jointly. Would definitely make sense for those on the lower (and middle) end of the income scale to support limiting itemized deductions that are primarily used by the wealthiest Georgians – simplifying the income tax system and making it effectively flatter.

  3. I just came here to note that “% of your income” does not equal “tax rate.” The wealthiest 1% pay less of their overall income for everything, from cable TV to healthcare to groceries. It’s the biased liberal mindset that conflates ‘percentage of income’ paid in taxes with ‘the system is rigged’ for the wealthy. That’s utter nonsense.

    • Alex Rowell says:

      Mike, % of your income paid in taxes definitely equals “effective tax rate,” as stated in the story. Looks like I’m unable to edit the title with my current WordPress rights, but I think it’s clear in the article that I’m talking about effective tax rates.

      You’re right that the wealthiest 1% consume less of their income in goods that we tax – that’s the exact reason why moving towards consumption taxes would end up taking more from Georgia’s poorest and less from the wealthiest.

      • saltycracker says:

        I’m for starting by tossing out schedule A or setting a 5-7% no deductions, no exceptions from $1,000 and up income. We should also end property tax and set a sales tax of around 5% on every monetized transaction.

        That makes a cultural sense of fairness and moves tax avoidance from a sport to poaching.

        • saltycracker says:

          Should point out lobbyists and legislators are still going to find ways to redistribute collections back to individuals, corporations and public employees, strapping public responsibilities.

      • John Konop says:

        Alex,

        ……….moving towards consumption taxes would end up taking more from Georgia’s poorest and less from the wealthiest……….

        I have suggested replacing payroll taxes with a VAT or NST (both consumption taxes)…..in that case I think your above statement is wrong. Also, one of the big issues with entitlements ie Medicare…..is a lot of it is free…..people get stuff from the hospital after procedures, and except it without needing it via it being free…I am big fan of having at least some cost associated…..changes behavior…..in general that is why I like fees associated with usage….called behavior modification…..I realize you cannot do everything that way….but tying revenue to budget to usage…..works at pushing people toward rational behavior.

  4. saltycracker says:

    Would flipping it to dollars paint a totally different picture that the poor get a lot better deal on public funds like education ? How much savings, investment, discretionary earned money is too much ?

    Income – how is that determined for this – surely all earned but does it include all individually paid/granted monies, food stamps, unemployment, medical, disability, child care credit payments…….

    • benevolus says:

      We set rules for society and anytime you make rules there are going to be winners and losers. The rules we made favor wealth- if you have it you can make more, if you don’t, it’s a struggle. Some people of course cross over whether due to exceptional hard work or luck or whatever. But when we see income disparity becoming more extreme at an alarming rate, isn’t it a signal that we should consider adjusting the “rules” of the game? If we just throw our hands up and claim “theft!” or “Socialism!” or something we will end up a feudalistic society again. To me it feels like we are really close to that actually. If 1% of the people own 35% of the wealth (and 20% own 85%), that’s not much different than a French monarchy. People complain all the time that elections here are a joke as almost no one participates and big money essentially buys puppet leaders.

      • saltycracker says:

        The income gap is a sign of monopolies and oligarchies and folks gaming a screwed up tax and governance system, not a well regulated country promoting competitive private endeavors.

        From your past posts it appears your support of illegals suggests you employ them. Do you ? Do you also drive a vehicle to work and to personal errands that you write off in your business ? If so, you just might be part of the problem you speak.

        • saltycracker says:

          My first remark got lost : a comment on senators leaving office with net worth improved a dozen or more multiple times and execs of major corporations earning 600 times the average worker is a bad indicator of our spoils system.

        • benevolus says:

          I don’t know what you mean. I don’t support “illegals”. I just think it makes more sense to go after those who employ them. No one seems to have a good reason why we don’t do that and instead go after the poor schmucks just trying to get a job.

          • saltycracker says:

            No argument with that piece of your response and maybe expand it to all who are accomplices in the exploitation.

      • Noway says:

        B, according to IRS stats, the Top Ten Percent paid 68 percent of all federal income taxes in 2011 while earning 45 percent of all income. The bottom 50 percent paid 3 percent of income taxes but earned 12 percent of income. So, the change in the rules you speak of is taking even more of another’s wealth? Because they don’t “need” all the money they earn? How do you justify/rationalize taking more money that has not been earned by those seizing it? Do those top percenters employ people? Do there investments, say, in Ford or Apple stock, help employ people? Do they do anything positive in your view? The government already spends well over one tril a year on social/entitlement programs.

        • benevolus says:

          I don’t have to justify it. It’s not a matter of principle. We already pay taxes, and we already pay on a sliding scale for that matter. It’s just a matter of adjusting it so that the economy can survive. I know I’ve read many times that too much income disparity causes major problems for an economy.

          • Noway says:

            So asking guys like Buffett or ultra successful people to help out a little bit more will benefit society?

            • benevolus says:

              It seems more likely to help than trying to squeeze a few more shekels out of those who are already struggling!

  5. Howard Roark says:

    The top 1% pays $21,600 on $432,000 of income. (12 x what the lowest 20% pays on an income of $16,000)
    The top 4% (my spouse and I are both public educators and fall into the bottom of this group) pays $12,141 on $171,000 of income. (7.2 x what the lowest 20% pays on an income of $16,000)
    The lowest 20% pays $1,664 on $16,000 of income.

    Who stimulates the economy most by spending?

  6. Some concerns with this report from the Tax Foundation:

    The study isn’t actually focused on the distribution of taxes by income group; instead, it’s focused on how well state and local tax systems redistribute income. If the report was really about “measuring the state and local taxes . . . paid by different income groups,” ITEP would rank states by effective tax rates of the poorest residents. Instead, states are ranked based on a complex formula that compares various measures of pre- and after-tax income for various income groups.

    The report — supposedly a study of state taxes — includes the most regressive feature of the federal income tax, and leaves out all other features of the highly progressive federal income tax. Including the federal offset makes effective tax rates look more regressive than they actually are.

    ITEP assumes that business property taxes are partly passed on by business owners to renters and that some are exported across state lines. However, the same logic should also apply to several other tax types. Corporate income and sales taxes are partially exported, because a portion of them are paid by businesses. ITEP does not assume tax exporting for any tax other than property taxes.

    ITEP does not include taxes such as severance taxes, business license taxes, and other types of business taxes (such as gross receipts taxes and modified gross receipts taxes) in its analysis. This is problematic, because in some states, these taxes make up a significant share of the state budget and significantly alter the over distributional impact of a state’s tax system.

    ITEP cites a new S&P report that likely overstates the connection between inequality and state tax revenue growth.

    ITEP’s ideal tax system (no sales tax, very progressive income tax with lots of taxation of capital gains, and heavy reliance on individual income taxes) would lead to volatile tax systems that dampen economic growth.

    Source: http://taxfoundation.org/article/comments-who-pays-distributional-analysis-tax-systems-all-50-states-second-edition?mc_cid=e500cbbf53&mc_eid=ad1910776c

  7. Bobloblaw says:

    The study doesnt compare GA to other states. Id be curious to see what the numbers are for TN, FL, NH, NV etc.

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