Editor's Note: Today we conclude a seven-part series on the state's tax reform debate, which could fundamentally change the way we pay taxes in Georgia.
After two months of working behind the scenes, it’s decision time for lawmakers on state taxes.
In coming weeks, legislators will decide whether to vote on a comprehensive plan to rewrite Georgia’s tax code, a proposal that could lead to higher taxes on groceries, cigarettes, person-to-person car sales and services. The proposal also would lower income taxes for most Georgians.
Or legislators will decide whether to vote on bits and pieces of the plan.
To gauge support — or lack of support — for the plan, The Atlanta Journal-Constitution interviewed 20 lawmakers last week on six key parts of the proposal. Most support lowering income taxes, but many lawmakers acknowledged that the state also needs to raise enough revenue to pay for services like schools and health care.
“It has to be balanced,” said Rep. Don Parsons, R-Marietta. “We can’t have a bunch of cuts in taxes without trying to balance it somehow.”
Putting off the tax-code reform during the 2011 session might kill the idea for a while. Few lawmakers will want to address it in 2012, an election year for all 236 lawmakers.
But many of those interviewed by the AJC argued that the state tax code has to change with the times.
“We have an income tax code from the Depression, we have a sales tax code from the 1950s, and we’re now starting the second decade of the 21st century,” said state Sen. Doug Stoner, D-Smyrna.
PROPOSED CHANGES
Lawmakers were split on this issue, with more Republicans than not willing to consider it if paired with lowering income taxes. Democrats generally oppose it.
The plan calls for the state to begin charging its 4 percent sales tax on all groceries. Supporters say it is a tax everybody — including those who don’t file state income tax returns — would pay.
“It would be the most consistent source of revenue. Everybody has to eat,” said Sen. Butch Miller, R-Gainesville.
But Democrats worry that it would most hurt the poor and middle class, who spend a greater portion of their income on food.
Sen. Vincent Fort, D-Atlanta, said he couldn’t vote for any bill that included a grocery tax. “No, absolutely never,” he said.
Not all Republicans are sold on it either. “I don’t vote for tax increases,” Rep. Alan Powell, R-Hartwell, said when asked about it.
The plan calls for the state to eliminate exemptions on certain non-work income, such as investments and pensions, for senior citizens. It would not affect Social Security or most disability payments.
Under state law, the first $35,000 per person, or $70,000 per couple, of non-work income for seniors is exempt. Starting in 2012, the state will begin completely phasing out taxes on seniors for non-work income.
Lawmakers were mixed on the issue. Some said there was no way they would take the exemption away from seniors. Others said it needs to be considered.
Rep. Nikki Randall, D-Macon, said she might support keeping the exemption for lower-income seniors.
“Some seniors have a whole lot more in investments than others, so I think it should be means-tested,” she said.
But Cooper said lawmakers would be breaking a promise they made in recent years to seniors if they eliminated the tax break.
“I have real trouble when they make promises to people and then renege on those promises,” she said.
The tradeoff for raising grocery and other taxes would be a drop in state income taxes, from a top rate of 6 percent to 4 percent or less.
Republicans have long argued that the state should be taxing things people buy or spend money on instead of the income they earn.
“I would like to see a greater reduction in income taxes and a move solely toward a consumption tax,” said Rep. Tim Bearden, R-Villa Rica. “I would like to basically see an elimination of the income tax.”
Opponents say the tradeoff would result in the poor and lower middle class paying more in taxes.
“I think in reality, if we are going to tax groceries, for someone earning $50,000 a year, they will pay more in sales taxes than the reduction they receive in income taxes,” Stoner said. “I don’t think that has been well thought out.”
The tax council has proposed extending Georgia’s 4 percent sales tax to a host of services never before taxed, including veterinary procedures, tire rotation, haircuts and country club memberships and dozens more.
While the issue is far from settled, two-thirds of Republicans surveyed either were opposed to taxing services or were undecided.
“My wife is a hairdresser. It will impact me and my family personally,” Rep. Brett Harrell, R-Snellville, said.
Like many Republicans, Harrell said he is concerned that many will see it as a tax hike on families and would only support it if balanced with income tax cuts.
Rep. Ben Harbin, R-Evans, said he did not think the idea had much traction with voters. “The thought of having to pay taxes on haircuts, or pay taxes on services ... people just aren’t comfortable with that,” he said.
Others said the idea is at least worth considering.
“Desperate times call for desperate measures,” Randall said. “It’s obvious that our state is going through some desperate times.”
The tax council recommends Georgia’s 37-cent tax on a pack of cigarettes be raised to 68 cents. The proposed tax is an average of the surrounding states, but it would be the second highest next to Florida’s $1.34.
Opinion is split among lawmakers on raising the tax, with a slight edge toward approving an increase. Democrats generally support increasing the tax, which is among the nation’s lowest. Republican sentiment is more divided.
“I’m against any tax increase,” said Rep. Mark Hatfield, R-Waycross, summarizing the feelings several GOP lawmakers surveyed.
Pak said he could support increasing the tax if it was part of an effort to reduce health care costs by discouraging smoking. But there is a limit, he said.
“I think the American Cancer Society wanted to raise it a dollar, but if you raise it a dollar you are going to kill businesses on the border,” he said.
Rep. Sharon Cooper, R-Marietta, said she would support raising the tax because she believes it would result in fewer young people starting smoking.
“I’m a nurse. I’ve held people’s hands when they are dying, gasping for breath,” she said.
The plan recommends the state collect sales tax on private sales of cars, boats and airplanes. The tax already is collected from dealers.
The tax council believes it could generate about $150 million in state taxes annually, but many legislators have yet to form a hard opinion on it.
Rep. Ron Stephens, R-Savannah, said he could support the tax as part of a comprehensive overhaul.
“Auto dealers are at a competitive disadvantage under the current system,” he said.
Rep. B.J. Pak, R-Lilburn, said he has not made up his mind, but said it would be hard to hit people with a big tax bill when they go to register their car.
“It just seems inherently unfair to do that,” he said.
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