This week’s Courier Herald Column:
Tax dollars and government spending are a gold mine for political rhetoric. Whether the concept is whether someone is taxed “enough” or if someone is paying or receiving their “fair share”, candidates and elected officials have an unlimited supply of slogans to assure us that we could all be better if only other people paid more or received less.
The only constant among these slogans, regardless of party, is the absence of specifics and numbers. It’s easy to reassure someone that the government is assisting someone else to get ahead at his or her expense. Math, however, is hard.
Rhetorical sleight of hand is easy at the federal level. Congress, after all, is the only body that can declare it a compromise to cut taxes while increasing spending. State and local governments do not have this luxury. States must set tax policies to raise revenues while making sure they remain competitive with other states. Residents often point to other states when they a tax rate is too high. Companies have shown they are quite willing to relocate to states with lower tax burdens.
A couple of weeks ago Georgia was able to lure Mercedes Benz from New Jersey, largely because of the difference in tax climates. New Jersey has a top personal income tax rate of roughly 9% compared to Georgia’s 6%, and local median property taxes roughly four times that of Sandy Springs according to NorthJersey.com. New Jersey’s sales tax is fixed at 7%, but all of that goes to the state unlike Georgia’s system where the state takes the first 4% and other sales taxes are a local option.
The importance of the lesson from New Jersey is that it is the total basket of taxes that compose a tax burden. Georgians clamoring for tax reform must understand this when devising suggestions.
Georgia represents the cradle of the FairTax movement. Georgia’s John Linder was its original patron saint and Neil Boortz and Herman Cain have been among its primary evangelicals. The concept maintains a zealous following among many within the Georgia GOP. As such, the idea for a “Georgia FairTax” to eliminate Georgia’s income tax is beginning to receive discussion.
Discussion is nice. The math remains hard.
Georgia receives almost exactly half of its revenue from personal income taxes (45.2% of revenues) and corporate income taxes (4.6% of revenues). By contrast, the state receives one quarter of its revenues from the state portion of sales taxes. In the absence of other changes, the state would need to have a 12% sales tax to maintain current revenue streams if it eliminated the state income tax. This rate would not include the up to 4% of sales taxes levied by local governments. Most Georgians would pay at least 14% on all purchases, with purchases made in the City of Atlanta rising to a 16% rate.
There are also options to lower this rate by expanding the tax base to keep revenue constant. The largest segment of goods exempt from sales tax is groceries. Democrats have generally drawn a line in the sand when consideration is given to adding the sales taxes back to groceries, which were removed by Governor Zell Miller. The last time it was considered, it concerned enough Republicans that it was removed from the tax reform package before coming to the floor for a vote. Given the state’s populist mood and the assumption of population trends favoring Democrats, there’s little to suggest that this will be a palatable option to Republicans any time soon.
Then, of course, there’s the problem of Georgia’s sales tax relative to other states – and to internet purchases. Retailers in Columbus and Augusta among other border regions would find that residents would have an incentive to make a short trip to make their hard earned dollars go further. Absent a mechanism to collect taxes from internet sales, Georgians would be further incentivized to make purchases from online retailers who have not invested in the state, hired Georgians, or pay local property taxes.
Those who believe the offset to income tax cuts would/should be spending cuts need to spend some time with those on the legislature’s budget committees and/or the Governor’s budget staff. The campaign pledges of “cut the fat” visit us every campaign season. The reality of five years of budget cutting has left few easy targets. Anyone suggesting this as a remedy needs to be asked for specifics, as they likely haven’t bothered to even look at top line numbers, much have ideas for actual cuts.
When looking at Georgia’s competitiveness, it’s important not to get lost on one rate, be it income, sales, property, gas, or other tax rates. It is the bottom line is that makes Georgia competitive. It is rumored that Florida and North Carolina were in close contention with Georgia to land Mercedes. Florida has no income tax. North Carolina funds just over half of its budget with income taxes, having a top tax rate of 7.75%. Both received strong consideration, and remain strong competitors to Georgia’s economic development efforts.
It’s not whether Georgia has an income tax or what rate it remains that will solely determine our economic success. It’s the overall burden of taxes, combined with how well we use the tax dollars we collect that gives Georgia the economic edge we enjoy today.