Tax council recommends grocery tax, lower income taxes

The recommendations confirmed what many observers expected when the council began its work six months ago. Kyle Jackson, Georgia state director of the National Federation of Independent Business, released a statement praising the effort within minutes of the release of the 97-page report.

"There’s a lot here to digest, but we were especially glad to see that the council wants to reduce personal income taxes," he said. "That’s a big issue with our members, because many of them are sole proprietorships and pay taxes on their businesses at the personal tax rate."

Kathy Floyd, a lobbyist for AARP, said the proposed changes place too much financial burden on the fixed-income senior citizens she represents.

"This is going to be several hundred dollars more on them," she said. "We support expanding sales tax to services. We really do. But if you are going to do this on the basis of fairness, seniors on a fixed income are getting hurt."

Francine Reed of Atlanta was stunned to hear any panel would suggest raising taxes on food. Reed's $100 grocery bill would go up by just $4 under the plan, but she said she can do a lot with that money.

"For $4, I can make two or three good meals," the retired blood services worker said.

Rami Odeh, 48, of Sandy Springs was in favor of the increase and potential offset. “I think it’s a great idea,” said Odeh, who works in the fitness industry. “If it’s anything like a flat tax, I’m all for it.”

Council Chairman A.D. Frazier said the 11-member council was charged last year by the Republican-led General Assembly to retool the state's tax code to make it more business-friendly and "fair."

The recommendations represent their best effort to do just that while providing the state with a stable revenue stream, he said.

"It is a far-reaching analysis, and taken as a set, a complete set, it is largely revenue-neutral," he said. "Consumption taxes are a lot more stable, a lot more predictable."

Not everyone views it that way, signaling opposition the recommendations could face from lawmakers.

“I appreciate the work of the tax council; however, they are making recommendations that fail to take into account the situation of working families of Georgia,” said House Minority Leader Stacey Abrams, D-Atlanta. “We can’t treat all Georgians the same, and there are some real consequences to these recommendations.”

Cutting the corporate income taxes was a campaign promise of Nathan Deal, who will be inaugurated as the state's new governor Monday. But council members said interviews with business leaders convinced them that cutting the rate will do nothing to attract business to the state and that proposed income tax reductions are more significant.

Frazier said the council decided to cut the corporate rate to match the personal income tax rate to make the overall system more fair.

Deal spokesman Brian Robinson sounded a cautionary note about any tax reform not coming from his office.

"He reminds people he has a tax plan that he ran on. ... That's his starting point," Robinson said. "He has stated repeatedly that he is not going to support any plan that is going to increase the tax burden on Georgia's families and job creators."

House Speaker David Ralston, R-Blue Ridge, withheld comment Friday. In a meeting with reporters Thursday, Ralston said he would wait to read the recommendations before passing judgment. Although the council recommended making some changes, like the sales tax on groceries, within the next six months, Ralston said he was in no rush to act on them.

“I don’t know that we are under a deadline to deal with this,” he said.

Other council recommendations include increasing the state's cigarette tax of 37 cents a pack to 68 cents, which was greeted with frustration by health organizations hoping for a $1-per-pack hike.

Frazier said the council took an average of the rates of surrounding states to come up with the proposed increase. He said the council did not want to go higher and drive customers in border cities across the state line for smokes, a fear smoking opponents said was overblown.

The council also recommended simplifying the state's system of business tax credits and attacked a patchwork of services and items not subject to the state sales tax, including person-to-person sales of cars, boats and airplanes. The council recommended sales tax exemptions on business and agricultural inputs be kept and exemptions for energy used in manufacturing, mining and agriculture be added to maintain the state's competitive edge.

"We know that places like South Carolina are putting together strategies to take our industries out of here," Frazier said.

Christine Ries, a Georgia Tech economist who served on the tax council, said the recommendations stand to put the state in the forefront of the economic recovery with states that already have shifted away from income taxes.

"This is the future," she said. "This is where it is going."

The proposals come at a time when state tax collections are on a roll after a more-than-two-year dive.

Tax collections, more than 80 percent of which come from sales and income taxes, were up almost 11 percent in December and are up 8.1 percent for the first six months of the fiscal year. Individual income and sales tax collections were both up 7.7 percent over December 2009, giving state officials hope that the fiscal crisis is waning.

The improvement in the state’s books may have no impact on what lawmakers do on taxes, but it gives them even less incentive to raise taxes in the short run.

The recommendations now make their way to the General Assembly for debate.

Lt. Gov. Casey Cagle released a statement thanking the council and looking forward to "a thoughtful debate on this very complicated, yet critically important issue.”

Democrats -- a minority in both chambers -- were more critical.

"An increase of sales taxes forces Georgians to make difficult choices about whether to buy food or clothes for their families or whether to buy much-needed medicines," said Democratic Caucus Chairman Rep. Brian Thomas, D-Lilburn. "There are so many new taxes, it's like a new tax for every hour of the day."

While the council's proposals are for a flat income tax, Frazier and economists on the council said they have recommended a low-income tax credit to offset the loss of some standard deductions. The upshot should be a 20 percent decrease in most Georgians' income tax bill, offsetting increases in sales tax, Frazier said.

In addition, council members discovered federal rules prohibit charging sales taxes on groceries purchased with food stamps, so that exemption will remain. Frazier said the council planned to keep that exemption anyway.

The Special Joint Committee on Georgia Revenue Structure, a 12-member body made up of House and Senate leaders, is charged with writing the recommendations into one or several bills. The committee is expected to hold a series of hearings during the new session of the General Assembly, which starts Monday.

If the committee votes to pass the changes, they will move to the full House for an up-or-down vote. No amendments can be made once the bill or bills leave the joint committee.

If the House votes in favor, the changes then move to the Senate floor for a vote. After that, it would go to the governor's desk.

Frazier said the council believes it is important that the recommendations be taken as a whole and not handled piecemeal by legislators.

Staff writers James Salzer, April Hunt, Marcus K. Garner and Aaron Gould Sheinin contributed to this article.