For many Georgians -- even in a tough economy -- $26 is still chump change.
A tank of gas. Lunch. A book or CD.
But for about 1 million Georgians, $26 is a lot of money and can be the very difference in getting that tank of gas, buying groceries for a week or affording school supplies.
Which is why so many are dismayed over a Senate vote this week that would eliminate the refundable portion of the low-income tax credit that people who earn less than $20,000 annually so depend on.
“To me, it is tunnel thinking. I know that we need to be looking at every source for revenue, but this is not the direction to look,” said Kathy Floyd, advocacy director for AARP Georgia. “It is too shortsighted.”
The controversial Senate vote on HB 1198 -- which would affect seniors more directly -- comes weeks after lawmakers voted to eliminate taxes on upper-income retirees and approved legislation to cut in half the capital gains tax on stocks and bonds.
“This bill says that we are not going to take and write a check to someone who had zero tax liability and paid no taxes,” said the bill’s House sponsor, Rep. David Knight (R-Griffin).
Opponents point out, though, that the credit offsets other taxes that the poor pay to the state.
The bill passed the Senate 33-16, prompting Sen. Steve Henson (D-Tucker) to call it “Robin Hood for the wealthy."
“They are taking from the poor and giving to the rich,” said Henson, who voted against the bill. “The Republican strategy is to make the tax system as regressive as possible. I can’t believe they did this. They have an insensitivity to the people, and you would think that would not be the case in these tough economic times.”
If approved by the House next week and signed by Gov. Sonny Perdue into law, low-income Georgians would no longer get checks ranging from $5 to $26. Advocates for the poor and elderly hate the bill and lament that an amount of money seemingly as small as $26 can go a long way.
“It takes away a credit that poor and mostly seniors and the disabled depend on getting once a year,” Floyd said. “It could pay an electric bill, help buy one month of prescription drugs. When you are struggling, that money is important.”
The refunds were originally designed to offset the state sales taxes that the poor pay. The original bill was passed in the 1980s and gives a family of four, for example, an extra $100 a year. Sarah Beth Gehl, deputy director of the Georgia Budget & Policy Institute, said 1 million Georgians claimed the low-income tax credit in 2007 and received $29 million in credits.
“The sales tax is the most regressive tax because [low income people] consume all of their income,” Gehl said. “They spend a much larger portion of their income.”
In Georgia, two groups currently have refundable tax credits -- the people who earn less than $20,000 and corporations that have zero income tax liability.
“This measure removes the approximately $20 million from the lowest earning individuals and leaves in place the $20 million in refundable credits going to corporations,” Gehl said. “In addition to that disparity, legislators have just passed about a half a billion dollars in annual tax breaks for the state’s wealthiest individuals and corporations. It’s hard to misread the interests being served through these tax bills.”
Gehl said the bill is essentially a “tax shift” onto the “poorest Georgians,” especially if you consider the potential addition of a penny tax to support transportation.
But Knight, who drafted the legislation, argues that his bill does not eliminate the tax credit, just the refundable portion. He also rejects the argument that the state is balancing the budget on the “backs of seniors.”
“People who have paid in no income tax and have zero tax liability are in essence getting a check back,” Knight said about the current system. "If you pay no income taxes, how can you get a refund? How can you justify someone getting a check back from the state? That is, in its purest form, taking away from the taxpayer and giving to someone who has no tax liability. [It's] a redistribution of wealth.”
Knight’s original bill failed to get out of the House, but the Senate Finance Committee allowed him to attach it to a noncontroversial tax bill originally written by Rep. Judy Manning (R-Marietta).
Manning said she would vote for her bill but remains conflicted
“I didn’t realize what the amendment did,” Manning said.
Her original bill changed the definition of a taxable nonresident and would have raised millions in revenue, she said. Manning said that after the House rejected Knight’s bill, he asked her whether he could attach it to hers.
“I said certainly,” Manning said. “But it is kind of one of those kind of things that has unintended consequences that I would probably not like to have to deal with,” Manning said.
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