Georgia is long overdue for a comprehensive checkup of its revenue structure. It has been more than 15 years since Georgia has taken such a comprehensive look at its how it raises its revenue, and given the changes to the state’s economy and to the state’s taxes over that time, that is too long to ignore the long-term financial health of the state’s revenue structure.
There are three main questions that such a review should address:
● Does the current revenue structure minimize disruptions within the economy, promote economic development, and produce the appropriate growth in revenue? The revenue structure should match the state’s economy, and it should not cause taxpayers to go to great length to avoid taxes.
● Does the distribution of the tax burden reflect the appropriate split between individuals and businesses, renters and owners, rich and poor, current residents and new comers, and so forth?
● Does the complexity of the revenue structure impede the administration of the revenue structure?
There are many issues that need to be addressed in a revenue structure checkup. The following is a list of the more obvious ones.
As do other states, Georgia taxes insurance companies through a tax on insurance premiums rather than through the income tax. But the tax rate is higher than in nearly all other states and is thought to hamper Georgia’s effort to attract insurance companies.
Taxes on telecommunication firms were adopted at a time when the telephone company was a monopoly and a land line was about the only telecommunications service that households could buy. That is not the world we live in anymore, but our tax policy has not changed. We need to figure out how to treat fairly the diverse set of firms that provide communication services. While some states have addressed this, it is a complex and challenging task.
The property tax gets the most attention, perhaps because it is the most disliked.
When the original property tax law was passed in 1853, it was based on the principal of uniformity, i.e., that all property within a jurisdiction should be taxed at the same rate based on fair market value.
We have moved away from uniformity, which raises the fundamental question of how property should be taxed.
For example, should the tax be based on current value or the value at the time the property was purchased?
One justification for using the property tax is that it is related to benefits received — the benefit from fire protection depends on the value of one’s property.
Over time, the property tax has been asked to support more public services, but we have not asked whether these services should be funded through the property tax. Attention has been given to limiting property taxes and its administration, but these are just part of what should be considered in a review.
Fuel taxes were adopted so that highway users paid for those roads. Is that principle still operative, or should we find another means of financing transportation? This is relevant to the current debate regarding adopting a sales tax to fund transportation.
Some states have made major changes in how they tax businesses. In a world where businesses are much more mobile than in the past, we need to ask whether the corporate income tax is the most appropriate way to tax business.
Is the sales tax still the appropriate way of taxing consumption, given that the sales tax base is capturing a smaller and smaller share of spending? Calls have been made to expand the base to include services and reduce the number of exemptions. But we also can consider whether there are better options for taxing consumption.
The Department of Audits recently released a report pointing out that most fees have not been modified in many years, despite inflation. So, it appears that there is a need to address the fee structure.
Such a review should not be about what the level of public services should be, but focused on finding the best way to finance the appropriate level of public services. The review has to consider the combined state and local government revenue structure since the finances of the state government and local governments have grown more intertwined.
The current fiscal troubles that plague governments across the U.S. should not be the motivation for making permanent changes to the state’s revenue structure; rather, such permanent changes should be out of concern for the long-term fiscal health of the state.
Finally, the review should be based on solid research, but still reflective of what voters support.
Such a review should provide a blueprint for a revenue structure that will make for a brighter future for all of Georgia. Hopefully, the state’s revenue structure will undergo a complete checkup in the near future.
David Sjoquist is director of the Fiscal Research Center at the Andrew Young School of Policy Studies at Georgia State University.
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