The tax reform plan state lawmakers have kicked around since January has been declared dead more times than disco.
But last week, Republican leaders talked up a stripped-down version they say will bring new jobs to the state by lowering the income tax rate. As a bonus, this bill will not include a grocery or cigarette tax hike and leaves intact virtually every one of the popular tax exemptions that had phones in the Capitol ringing with calls from angry constituents.
House Majority Leader Larry O’Neal, one of the architects of the bill, said details of the plan may be released as soon as Monday. No numbers outlining how the plan would affect state revenues or household budgets were made public last week because they were not finished, he said.
“We have wrestled with the confirmation, the reconfirmation and the re-reconfirmation of all these numbers,” he said.
Georgia Tech economist Christine Ries served on the Special Council for Tax Reform and Fairness, which developed the original tax reform plan. She said legislative staffers are struggling to make a planned cut to the income tax rate fair to low- and moderate-income families.
It is a complicated enterprise because there are so many variables, she said.
“There is probably one person in Georgia who may pay the same amount of tax,” she said. Everybody else will pay a little more or a little less, she said.
“A little bit,” she said. “But it is spread over everybody.”
According to O’Neal and other members on the Joint Committee on Georgia Revenue Structure, the tax reform bill would lower the state income tax rate from 6 percent to at least 4.5 percent. But it also would cut out most of the deductions currently available to taxpayers.
O’Neal said the changes should mean the state will take in about as much income tax as it does now, but the lower rate will make the state more competitive for new businesses.
Ries said the plan really benefits white-collar entrepreneurs who file their business taxes using the individual income tax schedule. The tax council wanted to devise a scheme to attract those kinds of businesses, and the jobs they create, to the state by offering a more forgiving tax structure.
It does mean that lower-income taxpayers who itemize their deductions now could see their taxes increase, so lawmakers are trying to find a way to fix that, she said. Ries said that likely will mean saving some common deductions, but placing a cap on them to favor those hurt most by the new measures.
What the plan will accomplish is up for debate. Much of the reform the tax council recommended — ending tax breaks for special interests and broadening the sales tax to groceries and host of services — were left out.
Several GOP lawmakers said they would take those items up next year, but that is a questionable move. Next year is a re-election year for every state lawmaker, making such tough tax decisions that much more difficult.
Right now legislators are under pressure to show progress in job creation, but Sarah Beth Gehl, deputy director of the Georgia Budget and Policy Institute, said she does not really buy the tax reform plan as a job creator.
“One of the strongest findings of the tax council is that taxes are not a problem with businesses in Georgia,” she said.
In releasing their findings, tax council chairman A.D. Frazier said poor schools, a broken transportation system and clogged court system had more to do with keeping businesses from locating to the state than taxes. But the council was not charged with looking into those problems.
Gehl said calling the tax plan a “jobs bill” is good politics. “But to me this is about modernizing our tax system.”
Using that as a yardstick, Gehl said it is a good opening move.
“They probably bit off as much as they could politically and they got some good policy,” she said.
The committee’s decision to leave alone the state’s vast number of tax-exempt goods and services pleased many who would have been directly affected.
The Georgia Veterinary Medical Association lobbied legislators not to make vet services subject to state sales tax. Within hours of the joint committee’s meeting Thursday the association sent out an alert hailing the defeat of the “pet tax.”
“We’re very happy about that. We’re primarily happy for the pets that we treat. That was our biggest concern,” said Vince Obsitnik, a vet in Peachtree City.
Obsitnik said his practice has seen sicker dogs and cats and an increase in the number of pet abandonments and euthanizations since the start of the recession. He said he feared things would only get worse with the added cost of sales tax.
“If people need to stretch out the health care of their pets we were concerned about the health effects to the pets,” he said.
The new plan also may please some political critics. Virginia Galloway, state director of the conservative group Americans for Prosperity, had concluded the tax council’s plan would increase taxes on most Georgians. The new plan is better, she said.
“I have to withhold judgment of it until I see the bill,” she said. “What I’m waiting to see is what they are going to do with itemized deductions.”
Galloway said she is greeting the renewed effort with “guarded confidence.”
“We want tax reform, as long as it meets the goals that we like. But that’s kind of like everybody, isn’t it?” she said.
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