On the final day of the 2013 legislative session, a group of Republican legislators introduced “The Georgia Fair Taxation Act.” By doing so, they set the stage for what may prove to be the most important legislative battle of next year’s session, or potentially the decade.
“This bill is the beginning of the discussion to eliminate the income tax in the state of Georgia,” state Rep. Tom Kirby of Loganville said in announcing the legislation. According to Kirby, he has already conferred with and agreed to work with Senate President Pro Tem David Shafer, who has proposed similar legislation on the Senate side.
To offset the billions in revenue that would be lost by eliminating both the personal and corporate income tax in Georgia, Kirby says, the state sales tax would have to jump by three to 4.8 percentage points. In metro Atlanta, that would produce a combined state and local sales tax of roughly 11 or 12 percent. (As we’ll see, the actual number would be higher still.)
In addition, the reach of the state sales tax would be expanded considerably, perhaps to food and other items. The national version of the so-called “FairTax,” cited by Kirby and others as a model for Georgia, would apply the sales tax to items such as rent, health care and tuition.
Such a proposal creates many problems, but here are three of the largest:
1.) The change would mean major tax increases for the vast majority of Georgians, and major tax reductions for the wealthy and corporations. There’s no dispute among economists: As a revenue system becomes more reliant on the sales taxes, it hits the poor and middle class harder while providing large tax breaks for the wealthy. The single step of eliminating the corporate income tax would shift $735 million in taxes onto consumers.
2.) When asked about that massive shift in tax burden in a press conference last week, Kirby brushed it aside, asserting that greater prosperity and more jobs would more than compensate for higher taxes on the non-wealthy. “We bring this piece of the puzzle, and we can see an exponential increase in the number of businesses looking at Georgia,” he predicted.
The problem is, there is no evidence to support that claim. For example, in announcing the legislation, Kirby repeatedly cited competition from Tennessee and Florida, pointing out that those neighboring states have no income taxes. Given the economic miracles that an absence of an income tax is said to produce, those states must be booming, right?
Wrong. Per capita GDP in both Tennessee and Florida is well below the national average, and below that of Georgia as well. Tennessee has lost 3.5 percent of its jobs in the last five years, compared to 5.9 percent in Georgia and 7.2 percent in Florida. So the absence of an income tax doesn’t seem to have done them any great favors.
3.) The sales tax increase needed to keep the system revenue neutral will be considerably higher than the estimate of 3 to 4.8 points. That estimate was derived through “dynamic economic modeling”, which is a fancy way of saying “just making numbers up.” “Dynamic modeling” assumes that Georgia’s new tax system will create an economic boom, which in turn will generate a lot of new revenue. It is pure conjecture.
If that magic revenue doesn’t appear, as it probably won’t, Georgia’s battered budget would suffer even more whacks with a meat ax.
It’s hard to tell whether legislative leaders are blustering about the proposed change to satisfy their base, or whether they are serious about trying to pass it. However, the Senate’s top leader is championing the concept. As a congressman, Gov. Nathan Deal was a strong supporter of the FairTax at the national level. And among the co-sponsors of Kirby’s bill in the House are Ed Lindsey, the House majority whip, and Donna Sheldon, chair of the House Republican Caucus.
Once put to a floor vote, such a measure will be hard for GOP legislators to oppose. As state Rep. Buzz Brockway pointed out in last week’s press conference, “It is tough to win a Republican primary in the state of Georgia and be against the FairTax. So I think on the Republican side there is broad support for the FairTax model.”
