Both the Georgia Public Policy Foundation and the Georgia Budget and Policy Institute offered analyses of HB 387, a substitute for earlier tax reform legislation.
From the Georgia Public Policy Foundation:
The growth rate of per capita personal income in Georgia over the past decade is next to last in the nation. We obviously need something to give our economy a jolt. Economists tell us reducing income tax rates is the best policy solution to stagnant growth.
Many recommendations from the tax council’s original plan have been removed in the final proposal, but the most important part — the reduction in the personal income tax rate — remains.
The tax council’s recommendations were absolutely correct from an academic perspective. They followed the advice of tax experts and economists and aligned the recommendations to proven tax principles. Political consideration was not their concern. However, in order to pass a bill it must pass political muster. As a result, the Joint Committee appears to have removed several of the recommendations due to a lack of consensus.
Among the guiding principles of the tax council was a tax structure that was growth-enhancing, efficient, stable, clear and fair and equitable. The council said a good tax system creates as few distortions in economic decision-making as possible; has broad tax bases and low tax rates; has few exemptions and special provisions; promotes equity through transfers, subsidies and tax credits rather than by having tax rates increase with income (through progressive tax rate structures); taxes consumption rather than income in order to encourage saving and investment; and keeps tax rates low because taxes reduce the quantity or level of activity of the thing that is taxed.
Although scaled back, the new proposal meets these criteria. The proposal appropriately is a pro-growth reform that will encourage more savings and investment, higher wages, more jobs and more economic opportunity for our citizens.
From the Georgia Budget and Policy Institute:
Although the reform package could be better in stabilizing Georgia’s short-term fiscal problems, it does strengthen long-term finances by bringing some items back into the tax code and by very modestly broadening tax bases.
The bill is revenue neutral, according to comments by committee members. In contrast, the tax council’s proposal (perhaps unwittingly) would have raised $500 million to $970 million, depending on the state and local split of certain revenues.
Georgia is in a fiscal hole. The state faces a serious structural deficit even after the economy fully recovers due to its outdated tax system. In hitting a “revenue neutral” target, legislators should consider whether they would like this proposal to be revenue neutral to the hole in which we currently find ourselves, or revenue neutral to a trend line that doesn’t include the worst recession since the Great Depression.
Prior to releasing the bill from committee, lawmakers should take a hard look at whether other items such as additional services or cigarette taxes should be included. These additional provisions could ensure Georgia is revenue neutral to a good year, rather than a year that will see us continue to cut school days, increase class sizes, and put off needed business-attracting investments in the state’s infrastructure.”
“We should not hold ourselves in the short-term to revenue neutrality to 2012 alone — it is not a magical year.”
“The tax council recommended taxing several categories of services, while the current proposal ... extends the sales tax only to the category of auto repair services. This is a good first step, but other services will need to be brought into the tax base in the future to stop the deterioration of the sales tax.”