'Georgia's incredible shrinking sales tax base'

For nearly a decade, the vision of a government fueled by sales taxes has hovered over our Republican-run state Capitol like a shimmering holy grail.

It’s been every bit as elusive. And may have just become even more skittish.

In Georgia, the push toward consumer-funded government has had several iterations, even predating House Speaker Glenn Richardson’s “G.R.E.A.T. plan” in 2008 to eliminate school property taxes.

The plan collapsed when Richardson outlined the 174 services that would have to be newly subjected to a state sales tax in order to pay for the shift. Never mind the proposed restoration of the sales tax on food.

In one form or another, the grail has been on the Legislature’s agenda every year since.

Last February, a more modest version was introduced by state Rep. John Carson, R-Marietta. House Bill 445 would lower the state personal income tax from 6 to 4 percent, and the corporate income tax from 6 to 5 percent.

To pay for those decreases, the sales tax would be increased from 4 to 5 percent. The sales tax on groceries would be restored – with an exemption for those 65 and older. A new sales tax on communications, intended to sweep up Internet transactions like music and movie downloads, would be imposed.

Carson, a relative newcomer to the Capitol, is a forthright fellow. At an August hearing on his proposal, he warned his colleagues that his legislation had sparked worry in certain quarters.

‘I met with the governor in his office the second week of July,” Carson said. “One of the main concerns brought up was Kansas.”

In that state, in 2012, Gov. Sam Brownback pushed through a massive income tax cut with the expectation that an increased sales tax and unleashed economic growth would make up the difference in state funds. It didn’t.

A spokeswoman for Governor Deal confirmed that the meeting with Carson took up not only Kansas, but two other states where Republican administrations have attempted similar moves.

“Representative Carson and the governor discussed the problems that elected officials are facing in Kansas, Louisiana and North Carolina,” said Jen Talaber, Deal’s communications director. “Specific to Kansas, however, the discussion centered on several Kansas school districts’ decision to cut short the school year to address the budget shortfall.”

The governor has other goals that would brook no break or disruption in the state’s revenue stream. “No one wants to be in the governor’s office when you lose your AAA bond rating,” Chris Riley, Deal’s chief of staff, was recently quoted as saying.

Then there is Deal’s intent to build up $2 billion in state reserves before his second term ends – a cushion lost to the Great Recession.

If that isn’t enough to give grail-hunters heartburn, there’s more.

Last week, Robert Buschman, a senior researcher at an arm of Georgia State University that studies state and local government finances, published a 16-page paper with a most provocative title: “Georgia’s Incredible Shrinking Sales Tax Base.” Read it here.

When adjusted for inflation, Buschman found, revenues generated by a state sales tax in Georgia peaked in 2001 – years before Republicans in the Capitol focused on that stream as the future of funding for state government.

The possible causes are myriad. The 40 exemptions in effect through next year account for $857 million of the shrinkage, but are only a partial explanation. Online sales (outside of Amazon.com, which has begun paying sales tax) is another area of leakage.

But the most likely culprit is a long-term shift that extends far beyond Georgia: The cost of physical (and thus taxable) products has been hardly touched by inflation. The cost of services – from Internet downloads to haircuts – is the untaxed stuff that is increasing in price. Or, in the case of online offerings, being created anew.

“More of the household budget is going toward services, even if you’re consuming the same basket of tangible goods,” Buschman said.

When we talked, the author of H.B. 445 said he hadn’t read Buschman’s paper, but agreed with its general premise. “That’s been my argument for ending some exemptions and loopholes,” Carson said.

State Rep. Jay Powell, R-Camilla, chairman of the House Ways and Means Committee, expressed some skepticism. “If the conclusion is that people are still not spending, and that they are spending more on services than natural goods – I’m not sure that I agree with it,” he said. But Powell didn’t dismiss the report out of hand.

I asked Buschman the purpose behind his paper. “It was meant to give [lawmakers] a better understanding of what’s happening to the tax base,” he said. “It’s a whole lot easier to do tax reform when revenue growth has been strong.”

Two more points might be read into this work. If Buschman’s numbers are right, the state sales tax might have to be expanded simply to keep up its strength as one of several sources of state funding.

Secondly, using the sales tax to eliminate the state income tax could require a far longer list of dunned services than has been previously imagined, making it a very, very heavy lift indeed.

And so the grail threatens to slip away again.

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About the Author

Jim Galloway
Jim Galloway
Jim Galloway is a three-decade veteran of The Atlanta Journal-Constitution who writes the Political Insider blog and column.