Earlier this year, I introduced the More Take Home Pay Act (MTHPA) to reduce the state income tax rates and diversify revenues towards more of a consumption tax. The goal has always been to address theoverdue need for commonsense restructuring of the state tax code and allow Georgia families to keep more of their money.
Although Georgia is among the top five states in the country to do business, we must always strive to become even better — particularly since we have the second-highest income tax rates among our border states and were recently ranked by the Tax Foundation as having the eighth-worst income tax climate.
Some have expressed concern over such a large initiative. I stand in total agreement that efforts to change Georgia’s tax structure must be done in a way that will protect our coveted AAA bond rating and ensure stable revenues for funding vital state programs. As such, I continue to believe it is important to remain transparent and dispel common myths related to the bill.
These include:
- The MTHPA eliminates the income tax. Not true. The bill incrementally reduces the personal income tax rate from 6 to 4 percent and the state corporate tax rate from 6 percent to 5 percent over three years.
- The MTHPA significantly cuts taxes. We are managing the revenue estimates to be revenue-neutral, or a slight tax cut. Other states, like Kansas, have suffered from tax rate reductions without considering the need to stabilize and replace revenue. By reducing the income tax rate and transitioning to more of a consumption tax, Georgia will maintain its ability to fund critical state obligations. Keep in mind Georgia was recently ranked by the Tax Foundation as having the 49th-lowest state tax burden.
- The MTHPA will damage Georgia's AAA bond rating. The rating is a major factor to low interest expense on our bonds and economic development. As a finance professional, I fully understand the impact of the AAA bond rating. Georgia has approximately $9.5 billion of outstanding bonds. If our bond rating dropped, for example to AA, the interest rate paid on 20-year bonds could increase by 0.25 percent, which would result in $23 million to$25 million of additional interest expense. According to economists, bond rating analysts look for diversity and flexibility in our state's revenues; the MTHPA improves both.
- Income taxes are a more stable source of revenue. By studying more than 12 years of state revenue to date, we have determined our consumption tax is as reliable as income tax, as compared to state GDP. In addition, this consistency has been achieved even before addressing the loopholes in the current consumption tax laws.
- The MTHPA "pays for" an income tax cut with taxes on other goods and higher cigarette taxes. The additional state revenues from these items would generate less than $400 million annually, whereas it takes a whopping $2 billion or so to reduce the state income tax by just 1 percent. The provisions addressing these taxes are for parity in the free market and average rates among our border states.
Finally, the More Take Home Pay Act does not tax certain purchases as suggested in previous proposals, such as Girl Scout cookies, Boy Scout popcorn, lemonade stands, etc. It continues to exempt haircuts, nail care, dry cleaning or any other personal care services. Additionally, doctors, lawyers, or any other professional services are exempted.
Finally, this legislation is not an elimination of the state income tax or a multi-billion dollar tax cutor a transition towards unstable tax revenues. It is, however, a major step towards lowering our state income tax rates and diversifying towards more of a consumption tax.
It is your money, not the government’s. You keep more of it, and you and your family decide how to spend it.
About the Author
