More sales taxes, less income taxes likely recommendation

By James Salzer

The Atlanta Journal-Constitution

ATHENS -- The head of a task force charged with rewriting the state tax code made it clear Tuesday that his panel will recommend moving toward heavier reliance on state sales taxes, and less on income and corporate taxes.

A.D. Frazier, chairman of the Special Council on Tax Reform and Fairness for Georgians, gave state lawmakers and lobbyists few details during an address on the University of Georgia campus. Those, he said, won't come until the panel releases its final recommendations in January.

But the push to broaden the sales tax base -- charging the state's 4 percent levy on more goods and services -- and cut personal and corporate income taxes meshes with the philosophy of the Republican leaders who will have to try to sell the recommendations to the General Assembly.

Frazier would not comment on whether the panel will recommend putting the state's 4 percent sales tax back on all groceries. The state tax was removed from most groceries in the late 1990s. Putting the tax on groceries would raise about $600 million a year.

During his campaign this fall, Gov.-elect Nathan Deal said he opposed putting the state sales tax back on groceries.

Frazier said cutting income taxes would make Georgia more economically competitive with neighboring states that have no or lower income taxes.

"The rest of the states, the ones we compete against, are going in that direction," he said.

"We are uncompetitive in personal income taxes," he said. "That becomes a competitive driver in our ability to compete for jobs. What we are trying to do is move the onus of taxation in favor of creating jobs."

What Frazier wouldn't say, either during his presentation to lawmakers or to reporters afterward, is which taxes would be raised to make up the difference if the state lowers its income tax rate, which tops out at 6 percent.

The state collects almost 83 percent of its revenue from sales and income taxes, so if income taxes are reduced, lawmakers will probably have to tax more goods and services.

Frazier said the panel may recommend categories of things that should be taxed, such as, say, financial services, rather than individual items.

That's with good reason. The more specific the panel is, the more lobbyists and special interests will have ammunition to fight the tax package. Lobbyists have packed many of the council's meetings and have regularly testified about the need for the state to either protect exemptions or provide new ones.

"The more aggressive the package of reform they bring to us, the more difficult it will be to pass it through the General Assembly," said House Majority Leader Larry O'Neal, R-Bonaire. "If it doesn’t come to us in a general package, it is going to be very difficult, with the various advocates out there in the state, to get an up or down vote with no modification."

Frazier and O'Neal said if the package passes, Georgians should not expect immediate, radical change.

"I think you're going to have a moderate gravitation to a consumption tax," was how O'Neal put it.

The majority leader said he doesn't want a tax package that "picks winners and losers within Georgia society."

However, the changes that Frazier's panel recommends will likely have both.

Among the winners could be manufacturers. Frazier said the panel will probably recommend eliminating the state sales tax on energy used in manufacturing, a big expense for carpet makers and some other businesses. Frazier said many states Georgia competes with exempt such taxes.

Businesses could benefit in other ways. Deal made a pitch to lawmakers Tuesday to cut corporate income taxes.

The state is expected to collect about $600 million this year in taxes on corporate income. Frazier told lawmakers taxes are not the top factor when corporations are deciding whether to move to Georgia. And he said Georgia has some of the lowest state taxes, per capita, in the nation.

But Deal campaigned on cutting business taxes.

"We all know education is a key part of that puzzle that will grow jobs," Deal said. "We also know that part of it is taxes. Whether we agree with this tax or another tax, we know that in the aggregate the tax climate of our state has an impact on whether or not we are viewed as a place that can grow jobs and whether or not we can recruit."

Some businesses could come out losers in the panel's recommendations as well. Frazier said some of the state's more than 100 special tax exemptions, passed over the decades by lawmakers, should be eliminated or at least reviewed again by lawmakers.

"Every time you give one group an exemption, it means the rest of you have to pay more," he said.

Critics of putting the sales tax back on groceries argue that the poor and lower middle class spend more of their income on goods and services that would be taxed. They would pay higher taxes overall, while the upper middle class and wealthy would see their taxes reduced if the state lowers the income tax rate. Conservatives argue that the wealthy and upper middle class now pay a disproportionately high share of taxes.

Alan Essig, executive director of the Georgia Budget and Policy Institute, an Atlanta think tank, said it's difficult to change the tax system without having somebody pay more, and some pay less.

"Every decision you make on this is going to have winners and losers," he said.