This afternoon, the House passed H.R. 2029 by a vote of 318 to 109. All of Georgia’s representatives voted in favor of the bill with the exception of the 4th District’s Hank Johnson and the 5th District’s John Lewis. The Protect America from Tax Hikes Act of 2015 continues many popular tax breaks that are typically renewed each year.
This year’s version makes several tax breaks permanent, including the tax break for commuters using mass transit, the American Opportunity tax credit, which helps pay college costs, and enhancements to the child tax credit and the earned income tax credit. Other tax breaks are extended only through FY 2016.
The tax extenders bill is the next to last item on Congress’s agenda for the year. What remains is the omnibus spending bill, which will determine how $1.067 trillion in discretionary spending will be allocated for fiscal year 2016. And as you can see from the tweets at right, there are things to like and dislike about the spending plan. One of the things to dislike is language dealing with the water wars that could lead to the entire Georgia delegation voting no tomorrow, when the vote is expected to be taken.
No such opposition arose from Georgia’s House Republicans over the tax extenders bill. Below, statements of applause and support: Read more
An announcement was made today by Gov. Deal stating that Georgia’s net tax collections for November, 2015 totaled over $1.64 billion, an increase of about $109.7 million (7.5%) from November, 2014. This brings the final net tax revenue collections to $8.4 billion for the 2016 fiscal year, which is up $699.5 million (9.1%) from last year.
In addition, $76.7 million was generated for transportation in November due to changes implemented by House Bill 170.
The following is a breakdown of the November, 2015 revenues in comparison to November, 2014:
Change From Nov., 2014
Individual income taxes
Gross Sales & Use Tax
Net Sales & Use Tax
Corporate income taxes
A copy of the November, 2015 financial report can be seen after the break. Read more
House Bill 170, which introduced an array of tax reforms and new tax legislation beginning on July 1, generated transportation revenue of $74.3 million in September.
Where did that number come from, and does it really represent a $74 million tax increase, which annualizes out to about $892 million? My analysis says not really.
Looking at the spreadsheet provided with the press release, we can see how the $74 million was arrived at. $689,000 came from highway impact fees — the fees for heavy or electric vehicles that were mandated by HB 170. Another $13,297,000 came from the $5 per room per night hotel motel tax. The final $60,344,000 came from increased motor fuel tax revenues. Let’s break that down a bit more.
In order to be completely accurate in my analysis, I would need to know the number of gallons of gasoline, diesel fuel, and other fuel types sold in both September 2014 and September 2015. That’s because the tax rates on the different types of fuels vary, and the differing rates will skew the numbers slightly. For my analysis, I assume that all fuel consumed was gasoline. While that affects the number of gallons of fuel purchased, I don’t believe it affects the end result too much. Read more
A newly released study conducted by the Fiscal Research Center at Georgia State University examines changes in sales tax collections in the Peach State over the past fifteen years, and concludes that because of a number of temporary and long term influences, sales tax revenue has declined significantly from what would be expected based on the growth of state gross domestic product and personal income. According to the study, sales tax collections in constant dollars peaked back in 2001. Since then, the state’s GDP has grown by 14% and personal income has increased by 24%. Yet, sales tax revenue is down by 31%.
In current dollars, an increase in revenues at the same rate as state GDP since 2001 would have led to state sales tax revenues in fiscal 2014 being about $2.2 billion higher than was actually collected. Using the growth of personal income instead, 2014 state sales tax revenues would have increased by about $2.8 billion. Given that total state revenue in FY 2014 was just short of $20 billion, the causes of the shortfall and whether it represents a short term abnormality or a long-term trend could have an effect on possible efforts to modify the state’s tax code.
Some of the shortfall can be explained by legislation passed by the General Assembly. The switch from charging sales tax on automobile purchases to the current Title Ad Valorem Tax represented $538 million in lost sales tax revenue, but no net revenue loss to the state. Other legislated tax breaks, such as the exemption of sales tax on energy used for manufacturing or the two sales tax holidays meant a lost of $238 million in FY 2014, or an estimated $280 million in FY 2016. Depending on the benchmark used, these legislative actions represent only 28-35% of the estimated revenue loss to the state.
What other factors are in play? The report postulates that households are changing their spending patterns from purchasing material goods to using services, which in the main are not subject to sales tax. The report estimates that purchases of taxable goods fell by about 8.2% between the turn of the century and 2014. This change alone is estimated to cost the state $389 million in lost tax revenue. Another factor is the growth in online sales, much of which goes untaxed due to laws saying that a seller without a physical presence in Georgia is exempt from having to charge sales tax. While it is difficult to determine an exact figure, the GSU study estimates a maximum loss of $250 million in FY 2014 due to untaxed online sales. Read more
Over the weekend, Walter Jones wrote a long story for Morris News on the potential risks of moving to a sales tax and reducing or phasing out the state’s income tax. The idea has drawn a lot of support here in the state where John Linder and his successor Rob Woodall have sponsored the federal version, H.R. 25, also known as the FairTax. Georgians look to no income tax Florida to our south, and to Tennessee to our north, which only taxes interest and dividend income and wonder why the same thing can’t be done here. They point to Texas, another state without income taxes, but one that has experienced phenomenal business growth.
The pie chart to the right shows the various sources of income going into Georgia’s 2016 budget. This year, 45% of revenue will come from the state’s individual income tax, 4% from corporate income taxes, and 26% from sales taxes. That’s three quarters of state revenue, with no other source making up more than 6% of revenue.
Two bills were introduced during the 2015 session that would move increase sales tax revenue while reducing the top 6% income tax rate. The one receiving the most attention is Rep. John Carson’s More Take Home Pay Act, which would drop the top income tax rate to 4% while raising the state sales tax rate to 5%. The House Ways and Means Committee has begun to hold hearings on Carson’s bill, which has undergone some revisions since it was introduced.
Another bill, introduced by Reps. Brett Harrell and B.J. Pak, is a more moderate measure that would trade the loss of most tax deductions for a three quarter point drop in the income tax rate, to 5.25%. And as part of House Bill 170, which provided additional revenue and funding for transportation, a Special Joint Committee on Revenue Structure will meet this fall to see if it can come up with some sort of proposal that would have the advantage of not being vetted by the normal House and Senate committee process, and would be subject to up and down votes in the House and Senate. Read more
Over at FiveThirtyEight, Ben Casselman and Allison McCann take a look at the different ways each state gets its tax revenue, whether from income taxes, property taxes, or other sources. It’s useful to compare Georgia to the national average, which you can see in this chart:
Compared to the nationwide average, Georgia relies far more on individual income taxes than other states, and depends less on general sales taxes (the 4% applied to almost any purchase except food and certain other categories) and selective sales taxes (taxes applied to certain products, such as the motor fuel excise tax, liquor taxes, etc.). The state collects slightly less than the national average on license taxes, and slightly more on property taxes. The numbers are taken from fiscal 2014 revenues.
Specific dollar figures are less important than percentages when considering state revenues, except when it comes to per-capita revenues. There the Peach State is second lowest, tied with Florida, South Carolina and Tennessee with $1,800 in tax per person. New Hampshire is the lowest, with $1,700 in per person tax revenue. Neighboring state North Carolina is higher with $2,400 per person, just under the $2,700 average. The state with the highest revenue per person is North Dakota, with $8,300 in taxes per person, although that’s a bit misleading since much of that money is from oil and gas revenue, not personal taxes.
If you’re really interested and want to play with the numbers, you can head over to the U.S. Census site where all the data came from.
A proposal for a significant change in the way the state of Georgia collects taxes was introduced by House leadership late this afternoon. Called the More Take Home Pay Act, the measure would create a single income tax rate of 4%, down from the current 6%, increase the state sales tax from 4% to 5%, and rid the tax code of a number of current exemptions.
The 87 page bill, which became House Bill 445 when it was first read in the House Momday morning, is sponsored by Rep. John Carson of Marietta. Rep. Carson explained the bill and what it would do in a late afternoon press briefing, which you can listen to below.
Rep. Carson and Speaker David Ralston emphasized that the proposal is designed to close tax loopholes, especially those that don’t lead to job creation and growth. The goal of the plan is to lower taxes for all Georgians, with Carson estimating that a family with the average income of $48,000 would save around $400 per year under the plan. Another goal is to make Georgia more competitive with surrounding states. Undeer the plan, a 4% income tax rate would be lower than all other Southern states except Florida and Tennessee, which have no income tax. A sales tax rate of 5% would be lower than all but Alabama, Louisiana and North Carolina.
In a prepared statement, Carson said,
Georgia’s tax system is long overdue for commonsense reform. The More Take Home Pay Act empowers Georgians to make more personal choices with their hard-earned income, shifting the power away from the state and toward the kitchen table. Ultimately, this bill answers the need for an updated tax system that is flatter, fairer, and puts our families first.
Speaker David Ralston added,
“Representative Carson is continuing one of the General Assembly’s most important discussions and I look forward to an open, inclusive debate on this proposal. We need a tax structure that encourages families to save and businesses to invest so that Georgia can remain competitive with our neighboring states. This bill will go through the committee process and, as always, constructive input is welcomed.
While many tax breaks and tax expenditures would be zeroed out, consumers would see new sales taxes on a number of items, including groceries, digital goods (think iTunes and other downloadable items sold online), and cable and satellite TV. Cigarette taxes would go from the current 37 cents a pack to 65 cents a pack under the plan.
The bill, introduced on Day 20 of this year’s legislative session, is not designed to pass this year. Speaker Ralston emphasized that the need is to get tax reform right, rather than do do it quickly, noting that the last round of tax reform in 2012 took three years to accomplish. Rep. Carson’s bill, along with a separate bill introduced today will be part of that discussion going forward
Leadership has requested a fiscal note, which should be available over the next week or so.
As the legislature continues to examine Governor Deal’s proposed 2016 state budget and the Transportation Committees in the House and Senate try to figure out how to raise more than a billion dollars to maintain the state’s roads and bridges, there is a parallel discussion about eliminating waste, fraud and abuse, along with corporate giveaways. And while much of that discussion involves taking a line-by-line look at the budget, a related but less noticed area of examination is of the so-called tax expenditures the state makes each year.
What’s a tax expenditure?
Tax expenditures are provisions in the tax code that allow for special treatment of a source of income or a certain type of expense. Such treatment usually results in a reduction in tax liability for the taxpayer. In principle, these tax benefits could be provided by direct appropriation, thus these provisions are referred to as “expenditures”. They represent tax revenues that would have been otherwise generated if not for this preferential treatment in the tax code.
Like direct government expenditures, tax expenditures are an allocation of government revenue that are intended to achieve a particular policy outcome or generate some activity. The value of a tax expenditure can be thought of as representing the amount of money that would be needed in the budget to provide the same level of financial support in the form of a government grant instead of through the tax code. Tax expenditures are received by businesses and individual taxpayers and are present in all of Georgia’s major taxes, including the individual income tax, corporate income tax, and sales tax.
This morning, House Bill 208, the 2015 version of the Georgia FairTax, was read for the first time in the Georgia House of Representatives. The bill would set a sales tax rate of 7.5%, and would provide for a prebate to individuals and families equivalent to half the sales tax rate times 1/12 of the annual poverty level. The bill, which is sponsored by Rep. Tom Kirby of Loganville, represents an update to House Bill 688, a similar bill filed by Kirby in the 2013-2014 session.
Much like H.R. 25, the federal FairTax bill sponsored by Georgia Congressman Rob Woodall, the bill replaces the income tax with a consumption tax. During the current two year legislative term, Rep. Kirby expects tax reform to be under consideration, and he wants a consumption tax, and especially the FairTax to be part of that conversation. While there are details, such as which, if any services would be subject to taxation that need to be filled in, Rep. Kirby said much of the work on the bill was complete.
Kirby arranged for the bill to be read for the first time today so it would coincide with the day Georgians for Fair Taxation visited the Capitol, and he recognized the group in morning orders. After the bill was read in the House, Speaker David Ralston assigned the bill to the Ways and Means committee.
Over at the AJC, James Salzer reports that for the purposes of collecting sales tax, for the next six months the price of gasoline is $2.946 per gallon. That’s despite pump prices falling below $2 in much of the state. Why? Because instead of figuring out what the tax is at the time you buy that gas, the price for the purpose of calculating the sales tax is fixed every January and July for the next six months.
In July, 2014, Governor Deal decided not to raise the sales tax price because gas prices were higher than expected The sales tax price remained frozen at the beginning of this year because prices are lower than expected. The volatility in the price of gas can have a big effect on the revenue for the DOT. On Tuesday, new DOT Chief Russell McMurry told lawmakers at a budget hearing that DOT would expect to lose around $86 million over six months if the sales tax price was lowered to match the retail price.
What really caught my eye in the Salzer story, though, was this:
So instead of paying a 4 percent tax on $2 per gallon at the pump, consumers are paying 4 percent on $2.946 per gallon. On 10 gallons of gas, the difference is about 36 cents.
That only tells part of the story.
In reality, consumers are paying between a 6 and 8 percent sales tax on gasoline due to county SPLOSTs, E-SPLOSTs, HOST or MOST taxes. In Fulton, DeKalb and Clayton counties, there’s 1 percent for MARTA, and in the regions that passed the 2012 TSPLOST, there’s 1 percent for transportation. That means on a ten gallon gas purchase, consumers are paying around 76 cents more than they would be expected to.
Here’s yet another way of looking at it. With the sales tax rate locked in at $2.946 per gallon, the average consumer is paying 28.1 cents in Georgia taxes per gallon, including the 7.5 cent per gallon excise tax. Of that, the DOT actually gets 16.3 cents to pay for maintenance and construction of roads and bridges. That’s the excise tax, plus 3% from the state sales tax. The other “penny,” plus the county sales taxes go elsewhere. Drop that to the $2 per gallon you’re actually paying at the pump, and the numbers are 21.54 cents vs. 14 cents per gallon. For these examples, I’m assuming a 7% combined state and county sales tax rate, and I’m ignoring the federal excise tax on gas of 18.4 cents per gallon.
One final thought: If you drove a vehicle that gets 25 miles per gallon 15,000 miles last year, you paid $168.60 in state gas excise tax and sales tax, based on the numbers I used in the preceding paragraph. Of that, $97.80 went to the state DOT, and $70.80 went elsewhere.
The FairTax, a proposal to scrap federal income and payroll taxes in favor of a 23% sales tax, has a strong Georgia pedigree. Originally proposed by Congressman John Linder and popularized in an eponymous book by Neal Boortz, the plan was re-introduced as H.R. 25 this year by Georgia’s Seventh District Congressman Rob Woodall.
Now comes freshman Georgia Senator David Perdue, who is pushing the measure in the upper chamber. According to Ryan Lovelace in National Review, he’s not expecting the measure to win approval. Instead, Perdue hopes to use it to brand the GOP as the party of economic populism in advance of the 2016 presidential election.
Perdue couches his description of the FairTax in rhetorical terms — “levels the playing field,” “pay your fair share,” “equitable” — that could’ve come straight out of Obama’s State of the Union address, and that’s no accident. … [I]t could allow the GOP to seize the mantle of economic populism from the Democrats, and, in so doing, to “win” tax reform in the eyes of voters. That’s important, because tax-reform legislation is one of the few big, ostensibly bipartisan efforts the new Congress is expected to undertake, and the scramble to take credit for it ahead of the 2016 presidential election will be fierce.
It’s an interesting concept. There’s no doubt that the FairTax has a populist appeal; one of its main selling points is that the taxpayer, not the government, gets to decide how much of his money goes into the government’s pockets. Another point in its favor is that the flat rate, after the prebate designed to counter the regressive nature of a consumption tax, is the same for all, rich or poor.
Contrast the messaging of the FairTax proponents with what we heard on Tuesday from President Obama: a tax increase on the wealthy that will pay for free community college for the rest of us. That’s also a populist appeal, but from a completely different angle than that of the FairTax.
At least one economist points out that the economic populism of the FairTax could attract the support of Democrats, in addition to its traditional Republican / libertarian leaning base:
Laurence Kotlikoff, an economics professor at Boston University, has studied the FairTax and thinks it is a more progressive proposal than people realize. Kotlikoff says lawmakers’ lack of experience in public finance has led to a misunderstanding of the FairTax. He adds that he thinks Democratic minority leader Nancy Pelosi might even come around to the idea, if she realized that it would help some of the people she purports to care about most: workers.
Despite the fact that individual taxes as a share of GDP have consistently remained between six and nine percent (and the lower end of that range is more the result of recession than it is an altering of the tax structure), the debate over the best way to spread the tax burden around is going to continue. The left’s proposal to tax the rich to pay for the needs of the middle class and the right’s proposal to make taxes optional by taxing consumption can appear as goalposts on opposite ends of the playing field. Yet, the difference between the two could simply be a matter of appearance rather than substance.
The Georgia Transportation Joint Study Committee recently offered two major new revenue options to make up Georgia’s transportation funding shortfall: an additional 1% sales tax and a state gas tax hike. In order to sell the new sales tax, estimated to raise $1.4 billion annually, the committee originally designated that half of that revenue would be put towards cutting the state income tax. In a last-minute change, however, the recommendation was modified to let the General Assembly decide how to properly split any new sales tax.
This change makes the option much more palatable to Georgia Democrats, who on principle push against movement to more regressive sales taxes from income taxes. The fact that this change was necessary despite massive Republican majorities in the General Assembly confirms that Democrats will have a seat at the transportation table.
Committee Chair Jay Roberts says the General Assembly may decide to “take the other half [of a sales tax hike] and put it to something else.” If one funding source does end up being a sales tax increase, Democrats should insist that this is the case. Georgia could institute a state-level version of the Earned Income Tax Credit (EITC) to boost the after-tax income of working- and middle-class Georgians and counteract the regressive impact of a sales tax hike. Expanding the federal EITC is supported by both Rep. Paul Ryan and President Barack Obama, so a Republican-Democrat compromise on a Georgia EITC is not out of the question. The Georgia Budget and Policy Institute estimates that a state EITC at 10% of the federal level would cost $274 million a year, leaving over $1 billion for transportation and other priority investments such as education and health care.
Some committee options – eliminating the $180 million a year to the general fund from the 4th penny on gas sales taxes and beginning to pay off $3.6 billion in Department of Transportation debt from the general fund – would strain Georgia’s non-transportation budget. Democrats should be cautious. Any compromise should keep in mind that Georgia’s education system is still being underfunded by over $700 million annually, Georgia’s rural hospitals are struggling to remain open, and over half a million Georgians who would be eligible for expanded Medicaid remain uninsured. Options to relieve any new pressure on the general fund should be discussed. For example, eliminating a single loophole that allows itemizing taxpayers to double-count one of their deductions would bring in an estimated $460 million a year.
Transportation investment is incredibly important, and the report makes clear that our state is falling behind our peers. When our legislators are deciding how to raise the $1-1.5 billion annually to maintain our current system or the $2.1-2.9 billion required to actually improve it, Democrats should make sure that other state priorities aren’t crowded out and that tax increases don’t fall primarily on those who can least afford it.
The new session of Congress opened on Tuesday in a snowy Washington, DC, and in what has become a tradition for the first day of the session, Georgia’s Seventh District Congressman Rob Woodall again introduced H.R. 25, A.K.A. The FairTax.
Woodall, who helped draft the original FairTax legislation for his predecessor, John Linder, has long positioned the measure a freedom bill as opposed to a tax bill. In a statement issued on Tuesday, Woodall said,
The current tax code is by far the most effective tool for politicians to use in manipulating the behavior of Americans, and the FairTax removes a very powerful weapon from their arsenal. The fact that there are those in Washington who would resist this can neither surprise, nor discourage us. The immense dedication of those in the FairTax community across the country is directly responsible for the consistent and significant progress we are seeing in Washington, and I’m grateful.
The bill was introduced this year with a record-breaking number of cosponsors, at 58. Georgia Reps. joining Woodall in co-sponsoring the measure include Buddy Carter (1st), Lynn Westmoreland (3rd), Tom Price (6th), Doug Collins (9th), Jody Hice (10th), Barry Loudermilk (11th), and Tom Graves (14th).
Three years ago, another of Gwinnett’s congressman also endorsed the FairTax, although he wasn’t on the sponsor list for 2015.:
It’s not FairTax Friday, but you are welcome to give us your thoughts on the bill in the comments.
There’s a relatively new term that’s entered the political lexicon: Corporate Inversion. It occurs when a company located in the United States moves its headquarters overseas in order to reduce its U.S. tax burden. The Obama administration isn’t in favor of the practice, with Treasury Secretary Jack Lew calling for a new economic patriotism that would inspire corporations to remain headquartered in their mother country.
Rejecting Lew’s exhortations, businesses say they are acting in their own self interest. They point out that while they may have originally made most of their sales and profits in the United States, the 21st century global economy causes more of their sales to come from overseas. And because of U.S. tax law, they are forced to pay taxes on that income. If they purchase a foreign corporation and then declare it their corporate headquarters, they avoid the tax. It’s all perfectly legal, but some pundits on the left have called for companies to sign loyalty oaths, promising they won’t take their business out of the country.
When it comes to taxing profits U.S. corporations earn overseas, Michelle Nunn and David Perdue disagree.
Nunn, the Democratic Senate nominee, says profits earned abroad should be taxed and companies avoiding it are taking advantage of a loophole that needs to be closed.
Perdue, her Republican opponent, believes companies shouldn’t have to face a tax in the first place because no other country taxes overseas profits. He argues removing the tax would give those companies the incentive to use an estimated $2 trillion in ready cash sitting idle in foreign banks as a way to invest in American job creation.
While all three candidates in the race, including Libertarian Amanda Swafford, are calling for some sort of tax reform to solve the problem, the approach each would take would be different. Nunn appears to want to solve the problem by closing loopholes, implementing policies that would discourage relocating jobs and business overseas, and implementing revenue neutral tax reform. Perdue favors overall rate reductions, and along with Swafford considers the FairTax a possible solution to the problem.
A new study by a nonprofit called State Budget Solutions shows Georgia as having the second highest percentage point increase between 2001 through 2012 in the amount of revenue being funded by federal dollars. In 2001, 29.09% of state revenue came from the federal government, while in 2012, it was 38.06%, a difference of 8.97%. Only Louisiana had a higher percentage increase of 12.54%.
The average over the period had 35.48% of state revenue coming from the federal government. That’s enough to put the Peach State at 14th when compared to the other 49 states. Mississippi, Wyoming and South Carolina had the highest percentage of federal dollars, while Nevada, Virginia and Delaware had the lowest.
The Washington Examiner takes this a bit further, showing that on a per-capita basis, federal revenue went from $878 in 2001 to $1,424 in 2012.
Georgia’s state government receives less federal money per capita than 43 other state governments, but it’s rapidly losing its budget autonomy.
Federal dollars made up up 38 percent of the Peach State’s budget in 2012, up from 29 percent in 2001. The state received $5.6 billion for public welfare programs and $2.9 billion for education in 2012, along with $1.2 billion for highways.
The Republican Governors Association rightly notes Governor Deal’s leadership in keeping state taxes low and promoting economic growth. If voters approve a constitutional amendment in November, the state will be prevented from raising income taxes.
By keeping state taxes low, the amount of federal funding of the state’s budget is likely to increase, and that poses risks. As the State Budget Solutions study states,
Growing reliance on federal funding in state budgets is a dangerous trend. It threatens the financial stability of all 50 states, as well as the federal government. As federal debt skyrockets, Congress must look for ways to reduce spending. In the many states that count on the federal government for over one-third of their general revenue, every congressional spending reduction proposal puts the state at risk of a serious financial shortfall.
States must recognize that this funding arrangement also harms fiscal federalism. Federal funding usually comes with strings attached, and that means less chance for local control. When states cannot stand firmly on their own financial footing, they will lose the ability to make the best, locally-based, independent decisions for their residents.
Would you be willing to trade an increase in state tax revenue for a reduction in federal funding of state operations?