Drastically cutting or eliminating the state’s income tax in favor of a higher sales tax is a road to nowhere, not a sure-fire path to prosperity.
A new report by the Georgia Budget and Policy Institute shows the damage sure to follow any switch from a balanced state tax system that includes income taxes to one that relies mostly or entirely on the sales tax. Some Georgia lawmakers and activists are developing proposals along those lines that could cause serious problems for the state’s families, businesses, communities and economy.
If sales taxes become the cornerstone of Georgia’s tax system, as many as 80 percent of the state’s taxpayers would pay more taxes, depending on how some of the holes in current incomplete plans are filled. Eliminating Georgia’s income tax without wreaking havoc on the state budget would require an average state and local sales tax of up to 14.5 percent. Cut Georgia’s income tax in half and the state still winds up with a total sales tax of 9.6 percent in most counties.
Our analysis – “Tax Shift Plans Threaten Georgia’s Future” — focuses on similar plans from other states that Georgia lawmakers might replicate and recent proposals floated here, including legislation awaiting next year’s General Assembly.
How do income tax cuts deliver net tax increases on most families? A shift to sales taxes increases government’s reliance on levies that already fall most heavily on low- and middle-income people. For most families, a drastically higher sales tax bill cancels out any meager gains income tax cuts might bring. This has held true in every state to embrace the idea.
People lobbying for tax shift legislation say deep income tax cuts are proven to boost a state’s economy and create jobs. That claim simply isn’t true.
Twenty-one of the 25 studies on the topic since 2000 conclude state and local tax levels have little or no impact on economic growth. And from 2002 to 2011, income-taxing states had higher economic growth per person, a smaller decline in household income and the same average unemployment rate as no-income-tax states.
Deep income tax cuts would likely hobble Georgia’s economy by leading to more cuts in education, transportation and other ingredients of job-creation and high quality of life. Personal and corporate income taxes account for roughly half of Georgia’s revenues. If lawmakers don’t have the stomach to replace that revenue with a sky-high sales tax, the alternative is to slash Georgia’s budget. That means fewer dollars for quality schools and other investments that make Georgia an attractive place to start a business or raise a family.
Reform that modernizes the state’s tax code is needed in Georgia. But tax shift plans taking hold in Georgia’s Legislature are not tax reform. They are more akin to an ideological movement that threatens to veer Georgia in a radical new direction.
Georgia lawmakers would do well to go back to the drawing board to come up with a workable plan to modernize the state’s tax system.
