Georgia plan would raise taxes initially

Meanwhile, the big tax cut for individuals — a one-third reduction in the income tax rate — would be phased in over three years, starting in 2012.

If adopted as is by the Legislature, the proposal would provide good news for state budget writers, who face a $1.2 billion to $2 billion shortfall during the upcoming fiscal year and can use all the money they can get to pay the bills. But it could be unwelcome news, at least in the short term, for consumers trying to recover from the recession.

Members of the tax council say their proposal would eventually be “revenue neutral” — meaning it would cut taxes as much as it raises them. However, many of the benefits would go to corporations and select business owners, such as carpet manufacturers, farmers and mine owners.

Council members concede if their plan is implemented, Georgians may initially pay higher taxes.

Even when the plan is fully implemented and income tax rates fall, the plan won’t affect everyone equally. Some will pay less taxes, and some will pay more. It will depend on income, what they buy, how much they buy, and what services they use.

“With any tax reform there is going to be winners and losers,” said Sarah Beth Gehl, a tax analyst with the Georgia Budget and Policy Institute think tank.

Broadly, the proposal would make Georgians pay the state’s 4 percent sales tax on more goods and services. The state’s income tax rate and corporate taxes would be lowered, as would taxes on select industries.

Major parts of the plan fit into the general philosophy of the Republicans who were overwhelmingly re-elected last fall. GOP leaders have, for years, called for lower income taxes and heavier reliance on consumption taxes. Proponents say consumption taxes are more stable and fair than income taxes. Opponents say lower income taxes benefit the affluent, and higher consumption taxes hurt the poor and lower-middle class who spend more of their income on necessities.

It was clear from the reaction after the plan was made public Friday afternoon that selling it to the General Assembly will be challenging. It will be up to legislators, who convene their annual session Monday, to approve, adjust or shelve the council’s recommendations.

Lawmakers will hear from constituents angry over having to pay 4 percent more for groceries. And they’ll have their ears bent by lobbyists wanting to preserve current tax breaks and seeking new ones.

Linda Mosca, shopping at an Atlanta Publix, said a sales tax on groceries will hit the middle class hard, especially those like her who were laid off during the economic downturn.

“Frankly, with the economy the way it is, most of us have taken a pay cut already, and that’s really what this is,” said Mosca, 58. “I feel like they’re trying to make us pay for their shortfall.

“All they’re doing is shifting the burden off to the people who can least afford it,” Mosca said.

The trade-off also isn’t worth it to Tijuana Jefferson. The Norcross stay-at-home mom is already counting her pennies to keep her sons, ages 16 and 12, and husband fed.

“All this would do is make it harder to get through the year,” she said.

Groceries won’t be the only thing being taxed if the plan is adopted. A range of goods and services, from dry cleaning, auto repair labor, pet services and Costco memberships, would be subject to the 4 percent state sales taxes.

While the council recommended keeping current tax breaks for agribusinesses, a host of other exemptions could be eliminated. Georgians might have to pay a state sales tax on MARTA rides, on water bills, on tickets to high school football games, on prescriptions, on Girl Scout cookies.

State cigarette taxes would go from 37 cents a pack to 68 cents. Many phone services would draw a new 7 percent tax. Sales taxes would be charged when a Georgian buys a car, boat or aircraft directly from another person, as opposed to from a dealership.

Now that the council’s recommendations are out, the question is: Will they go anywhere?

The council was created by Republican leaders of the General Assembly, and it has the backing of House Speaker David Ralston and Lt. Gov. Casey Cagle. A.D. Frazier, the tax council’s chairman, met with state leaders before the panel made its recommendations, so the general tone of the report wasn’t a surprise to them.

A House-Senate committee will take the recommendations and consider which ones should make it into legislation. Then the House and Senate will vote up or down on the proposal.

Amendments won’t be allowed on the House and Senate floors, but what makes the cut, and what doesn’t, will be debated before the legislation gets that far. Lobbying efforts have already played a major role in helping convince the council to, for instance, make sure agricultural interests maintained their tax breaks and manufacturers got new ones. That kind of jockeying will continue, as special interests try to convince lawmakers that they deserve tax breaks, too.

Adding to the political pressure is the fact that all of this is occurring only a few months after voters strongly backed candidates who promised to hold the line on government taxes and spending.

Roger Tutterow, a Mercer University economist who served on the tax council, said it’s the General Assembly’s job now to sell the tax package.

“We were about the production, and the leadership of the General Assembly is about the marketing,” he said. “We made a fairly conscientious decision not to focus on the politics and thought instead about what made the most sense for the state.”

The council supported lower corporate income taxes despite saying corporate taxes don’t play a dominant role in attracting business. Politically, however, the call for lower corporate income taxes was important. Gov.-elect Nathan Deal campaigned on the issue, and Republican leaders have long pushed for lower corporate taxes.

While calling for taxes on many services, the council also avoided placing new taxes on legal and financial services, both of which have strong, politically active constituencies who play a major role in funding campaigns.

Since the plan was released Friday, Deal, Ralston and Cagle have had little to say about it. Ralston said he hadn’t read it and indicated he wasn’t in any hurry for the Legislature to take it up.

Rusty Paul, a former Republican state senator turned lobbyist, said the state’s tax structure has long needed updating. The current system struggles to fund basic government services, he said. But he added, “It’s going to be a tough sell in this [political] environment.”

The problem, Paul said, is that legislative leaders will have to persuade the public that it’s a good idea to raise their taxes on one hand while eventually lowering them on the other.

“There is an old adage in politics that if you’re explaining, you’re losing,” he said.