Georgia conservatives are pushing to reduce or even eliminate the state income tax by raising the sales tax, a change that they describe as “tax reform”. They also warn that with states such as North Carolina already making such changes, Georgia could get left behind.
I’d like to introduce those advocates to my mother.
Mom, the floor is yours:
“So tell me, if all your friends decide to do something stupid like jumping off a bridge, are you going to jump off a bridge too? Don’t you have more sense than that?”
Thanks, Mom.
Here’s what Mom — my favorite political analyst — is trying to tell them: If a few other states decide to stick 80 percent of their taxpayers with a tax hike, while cutting taxes on the richest 20 percent, is that a model that Georgia is somehow obligated to pursue too? Because according to a new report released today by the Georgia Budget and Policy Institute, that’s exactly what these so-called “reforms” would do.
After modeling three different approaches that have been sketched out in legislation and in public comments by conservative leaders, GBPI found that the tipping point in all three cases appears to be around $85,000 — those Georgia households making less than that figure would see a tax increase; those making more would pay less, in some cases significantly less.
As a result, GBPI analyst Wesley Tharpe points out, those “tax reform” approaches should more accurately be described as what they are, which is “tax shifts.” To cite just one example, cutting the state income tax in half and raising the sales tax enough to compensate would save the richest 1 percent of Georgians an average of $18,000 a year. However, that tax cut for the rich would be financed by raising taxes on the poorest 60 percent — those making $51,000 or less — by more than $300 a year, on average. That’s income redistribution from poor to rich, accomplished through the tax code.
(In assessing those changes, it’s important to keep the starting point in mind. Unlike the federal tax system, Georgia’s system already places a disproportionate burden on the poor and middle class. Today, the lowest-earning 60 percent of Georgia households pay twice as much of their income in state taxes as does the richest 1 percent. The proposed changes would compound that inequality.)
Sheer practicality is also an issue with these proposed tax shifts. Right now, the income tax generates more than half of the state’s tax revenue. If you eliminate that tax, GPBI estimates that you’d have to raise the combined state and local sales tax to around 14 percent to compensate. Merely cutting the income tax in half would require raising the average state and local sales tax to 9.6 percent to offset it. Sales tax rates that high would produce a series of economic dislocations, including driving a lot of Georgians to do their shopping in other states.
“Politically speaking, that would be difficult,” Tharpe predicted in an interview. “We think that the much more likely scenario would be to raise the sales tax rate, but not enough to offset the entire tax cut.” That in turn would force major budget cuts in a state where budgets have already been cut to the bone and have forced shortened school calendars, teacher furloughs and other cutbacks.
In fact, as Gov. Nathan Deal recently pointed out, per-capita tax revenues in Georgia are already among the very lowest in the nation, and he for one doesn’t seem eager to slash state revenues even deeper at the moment. House Speaker David Ralston has also sounded a bit dubious.
While that’s reassuring, 2014 is an election year, and a lot of people under the Gold Dome are looking for a promotion next year. With partisan passions likely to be heightened thanks to a loomng budget fight in Washington, it’s not hard to imagine state legislators getting themselves so worked up that they try to jump off that bridge anyway, no matter what Mom tries to tell them.
