YES: The tradeoff of lower income taxes benefits Georgia in the long run.
By Don Sabbarese
The Council on Tax Reform and Fairness has recommended that the Legislature extend taxes to more consumer services and groceries and to lower the income tax rate. A lower income tax rate has the potential to make Georgia a more attractive place to do business.
Georgia’s above-average job growth in the latter half of the 1990s and first half of the 2000s created a tax revenue base capable of meeting the state’s increased expenditures. That model worked well for a while, as long as the economy was growing. However, that abruptly changed when the recession hit, leading to tremendous job losses, business bankruptcies and economic growth so slow that it was not creating enough jobs.
That is why a tax base that is more dependent on consumer spending and less on income and profits would make sense. More dependence on taxes based on consumer purchases — such as groceries — restrains that volatility. Since food is the most essential form of discretionary spending, it is the last item that households cut as income falls.
The council’s recommendation to phase in the lower marginal income tax rate and expand the consumer tax will expedite revenue growth and reduce the budget deficit. The lower income tax rates also would make Georgia’s economic environment more attractive to out-of-state businesses and to in-state small-business owners. In the long term, Georgia’s ability to compete with other Southeastern states is a serious consideration as the state tries to come up with a more stable tax revenue base.
Georgia’s commitment to a business friendly environment has served it well in the past 20 years. The state’s ability to compete with other Southeastern states in attracting out-of-state business and investments — and encouraging organic business growth — was critical to Georgia’s phenomenal growth for most of the past two decades. Business investment creates a virtuous cycle of job growth and more in-migration in search of jobs, which leads to business growth and more jobs.
The Small Business Survival Index ranks Georgia as the 20th friendliest state for conducting business. In 2010, five Southeastern states ranked higher than Georgia (Florida, sixth; South Carolina, seventh; Alabama, ninth; Tennessee, 13th; and Mississippi, 19th). Lower state income tax rates should improve Georgia’s ranking. Lower personal income taxes also affect sole proprietorships, partnerships and S-corporations because 90 percent of these businesses file taxes as individuals. These also account for the majority of small businesses, which create most new jobs. While large companies can negotiate tax breaks, this offers small businesses such a break.
Although the recommended tax changes are said to be revenue-neutral, tax neutrality does not apply to all Georgians. The lower state income tax will benefit and offset the higher consumption tax by lowering the state income tax for Georgians who pay income tax. But for lower-income and nonincome taxpayers, there is almost no offset. So, for some, the regressive tax effect will increase. (Consumers using food stamps are exempted from the grocery tax. Tax exemption for nonwork income for seniors will be removed.)
Georgia must address its long-term ability to create a more stable, and growing, tax base. Another tradeoff is less Draconian budget cuts in future recessions. So, ultimately, the question is whether the potential benefit of a more stable tax base and a better environment for business in the future is an acceptable tradeoff to the pain and higher cost to Georgians from higher taxes on food and other services.
Don Sabbarese is professor of economics and director of the Econometric Center at Kennesaw State University’s Coles College of Business.
NO: A food tax will take money from working poor and elderly.
By Bill Bolling
There are many thoughtful recommendations in the Special Council on Tax Reform’s report. The tax system in Georgia, originally developed in the 1930s when Georgia’s economy was based on agriculture and manufacturing, badly needs updating. A tax system that reflects our modern economy must be balanced with thoughtful spending on infrastructure, education and services that make Georgia an attractive place to live, work and raise families.
But I take strong exception to the recommendation to reinstate a tax on food. Far from moving Georgia forward, it will make it that much harder for seniors, children and working families already struggling to lift themselves out of poverty.
This new tax will impact low- and middle-income households significantly more than households with disposable income. Low-income families will find that they have less food on their table — for the same money — with the only way to make up the shortfall using an emergency food system or doing without. These households already often are making choices between food and utilities, costs that also are rising across the board. Seniors often are making choices between food and medicine.
This is the wrong time to add a broad-based tax on food. It literally will take food off the tables of low-income and fixed-income families, at a time when food insecurity is rising. Fiscal year to date, the Atlanta Community Food Bank has distributed 40 percent more food to partner agencies than in our last fiscal year. Demand for food continues to be on the rise. Twenty percent of people coming to food pantries across the state report it’s the first time in their lives they have had to ask for help. A dramatic 36 percent of Americans seeking food assistance from Feeding America food bank partner agencies are employed.
2020 Georgia, a broad alliance of community leaders and organizations, makes a strong case for striking a balance between the need to find new revenue sources that reflect our modern economy, and making the right investments in the future of Georgia’s citizens.
Georgia has long been a leader in creating a healthy environment for economic growth through innovative investments. Adding a tax on food will immediately handicap a significant segment of our community that has the most potential to benefit from economic growth.
“Consumption taxes are a lot more stable, a lot more predictable,” A.D. Frazier told reporters during a news conference outlining the report’s findings. “They’re fairer because people can make choices on whether to spend money.”
They are very predictable; that’s for sure. We all have to eat. But certainly not more fair, as people don’t have a choice of whether they spend money on food. It’s not a luxury to have food on the table for one’s family.
Decisions have consequences. If the state assumes that our emergency food network, which already has been stretched to its limit, can continue to add to their rolls, they should at least say so, and acknowledge the tremendous efforts throughout the state.
There are no free lunches, and everyone is going to have to pay more, but the poor and unemployed should not be the first in line to be asked to sacrifice.
Bill Bolling is the founder and executive director of the Atlanta Community Food Bank.
