Why future is uncertain for tax proposals

Proposals to shift Georgia tax code away from taxing income and businesses and more toward sales and use taxes face a rocky road as state lawmakers prepare to debate the plan.

While members of the Special Council on Tax Reform and Fairness claim their recommendations, released last week, would make the state a top competitor for new industry, legislators have kept a wary distance.

On one side, Democrats and lobbying groups such as the AARP have criticized the plan as tough on working families and low-income senior citizens. On the other, anti-tax groups and some Republican legislators are concerned the plan really is a tax hike in disguise.

In his Capitol office, Sen. Mitch Seabaugh, R-Sharpsburg, thumbed through the inch-thick report. Like many of his GOP colleagues, he thinks the plan’s pluses come with big negatives.

“I have a friend who is a CPA who is running through scenarios,” he said.

While he likes the promised decrease in income tax and the move toward more consumption taxes, he is not convinced it would not raise taxes on most Georgians.

The council’s recommendations for flattening the state’s personal income tax would remove an income tax exclusion on investment income for retirees. Seabaugh has a problem with that.

“We’re putting a new tax back on them,” he said. “That’s the inconsistency.”

Tax council chairman A.D. Frazier said the plan would neither increase nor decrease net tax revenue. But, he said, the recommendations now are in lawmakers' hands.

“We know that we have given our best effort to give the state a fundamentally sound system of taxation that is built for the future, not the past,” he said.

Republican leaders thanked the council for its efforts, but have said little else. The recommendations now go to a special joint committee for debate.

Sen. Steve Thompson, D-Marietta, who was named to the 12-member committee this week, called the council's recommendations "gutsy." It will be up to legislators now to decide whether the state can afford the changes, he said.

“This is the time that you decide whether you want to invest in your state’s future or not," he said.

The committee level is where the process could get dicey, said Alan Essig, executive director of the Georgia Budget and Policy Institute. Lawmakers may be inclined to cherry-pick the plan for popular tax cuts, leaving the harder decisions on the table and ensuring state budget crises become an annual tradition.

“You could end up putting the budget fundamentally out of balance for a generation,” he said.

While Essig worries that legislators will cut taxes too much, Grover Norquist’s conservative group Americans for Tax Reform has warned the plan appears to be a huge tax hike.

Fourteen state senators, including Seabaugh, and 41 representatives in the General Assembly signed the Americans for Tax Reform pledge never to raise taxes. Half of the committee created to craft legislation based on the tax council report signed the pledge.

Despite assurances from the tax council, Norquist said it appears the increase to Georgia taxpayers would be "significant." In an interview with The Atlanta Journal-Constitution, Gov. Nathan Deal, also a signer of the Americans for Tax Reform pledge, questioned that conclusion.

"You have to look at each one individually, and I think you would conclude that things like a tax on groceries -- that's a tax increase," Deal said. But when taking the plan as a whole, the effect on taxes may be a "net zero," he said.

For Americans for Tax Reform, a big problem with the plan is that big tax increases -- including the sales tax on groceries -- would kick in this year, while breaks on income taxes would be phased in over three years.

"If all the increases are early and the decreases are later, there is a real danger that subsequent Legislatures will not implement the tax decreases,” he said.

Norquist said the legislators who signed Americans for Tax Reform's pledge made an "ironclad guarantee" they would never raise taxes. If they are serious about it, then why wait to roll back the income tax rate, he said.

“You are sitting next to Florida with no income tax, for crying out loud," he said. "You’ve got to be competitive.”

Along with groceries, the tax council's plan would apply state sales tax to a host of transactions to balance the cost to the state of lowering income taxes. The plan puts dozens of sales tax exemptions on the block, but each has a constituency that will fight to keep them.

For instance, Seabaugh said the council's recommendation to eliminate sales tax breaks for movie and television producers by this summer is an "almost irresponsible" suggestion.

“Just putting it in the report is going to cost us projects,” he said.

Seabaugh, who worked to get the exemption into state law, said the General Assembly has to send a signal it intends to keep the exemption or lose pending projects and the jobs they create.

“It’s not just actors and cameramen. It’s carpenters, electricians, cosmetologists," he said. “If we didn’t have that incentive, they wouldn’t come here, and a lot of people wouldn’t have jobs.”

According to the Georgia Film Commission, film and television production companies working in the state accounted for $1.15 billion in economic activity in the fiscal year 2009.

The film credit is just one fight among dozens that reform advocates face if they wish to make the exemption-heavy sales tax code into a predictable revenue machine. Recommendations to increase the sales tax on cigarettes and add new sales taxes on purchases by nonprofits or the private sales of used cars face a similar uphill climb.

The legislative committee tasked with hashing out the recommendations will hold a series of public hearings, giving lobbyists and advocacy groups plenty of opportunity to shoot down pieces of the tax council's plan.

Thompson said any changes that make it through should be tracked to make sure they work. If it is a tax break for business, the Legislature should be able to check back and make sure it is creating jobs; if it is a tax hike on groceries, lawmakers should trace the effect on the poor, he said.

“We have given so many tax breaks these last eight years that we need to revisit every single one of them," he said.

Staff writer Jim Galloway contributed to this article.