Many Georgians would pay lower income and car taxes — while paying more when they shop online — under a last-minute proposal that state legislators could vote on this week.
The tax plan, quietly developed by state leaders, also would cut taxes on manufacturers, a major goal of Gov. Nathan Deal and top legislators eager to jumpstart Georgia’s slow economy.
Full details of the plan haven’t been released, and many legislators involved wouldn’t comment on specifics. But officials with knowledge of the plan, speaking exclusively to The Atlanta Journal-Constitution, described what it might look like.
The proposal, put together by Deal and Republican lawmakers, is expected to go before a special tax committee Monday. The proposal could still change before it is released.
House Speaker David Ralston, R-Blue Ridge, wouldn’t discuss details Friday. But he said, “I am pleased with the process and optimistic that it is something that will be a job creator for Georgia.” Deal spokesman Brian Robinson called the proposal “pro jobs, pro family.”
Lawmakers regularly tinker with the state tax code, and any tax cuts are popular in an election year. All 236 lawmakers are up for re-election this year, and Republican leaders would likely sell the plan — if it passes — as an economic stimulant.
The proposal will include phasing out the sales tax on energy used by manufacturers. Deal has made that a priority in hopes of spurring a manufacturing sector that has struggled for years. Deal said eliminating the tax would make Georgia businesses more competitive.
But the manufacturing tax cut comes with a price tag: about $137 million in annual lost state revenue. So other tax changes had to be made to help pay for it.
The tax proposal also is expected to call for:
● Phasing out property taxes on cars, which some Republicans have dubbed “the birthday tax” because the levies are due on the owner’s birthday. In exchange, car buyers would pay a one-time title fee based on the car’s sale price, rising from 6.5 percent in 2013 to 7 percent by 2015.
When Georgians buy a vehicle, they would pay the title fee but no longer owe property taxes or pay sales taxes on the purchase. If Georgians keep the vehicle they have, they would continue paying property taxes.
That proposal would be a plum to the car dealers lobby, which has long complained that people who buy cars from other individuals don’t pay sales taxes on the purchase. Under the proposed tax deal, anyone buying a car would now pay hefty title fees. That would capture fees from individuals who sell cars to other individuals. Officials think that would provide an initial windfall to state coffers.
● Online retailers to collect sales taxes on goods. If included in the plan, taxing Internet sales may bring a lively debate.
Facing budget shortfalls, states around the country are trying to find ways to get around a 1992 Supreme Court ruling that said a physical presence — such as a store — was needed to require sales tax collections. States are trying to beat that restriction by passing laws that broaden the definition of a physical presence. Currently, Georgians are supposed to pay sales taxes on things they buy online, but most consumers don’t know that.
● A state income tax cut. Details were not available.
● A sales tax holiday for back-to-school shoppers. A similar holiday, held over a summer weekend each year, was discontinued as state revenues sank.
● A sales tax on goods and services used by movie makers.
● Freezing the state income tax exemption on “non-work” income for retirees, mostly investments and pensions. The exemption would be frozen at $65,000 a year for individuals, $130,000 per couple. Current law eventually phases out all income taxes on non-work income, such as interest, dividends and pensions. The result would be that retirees would continue paying taxes on anything over those amounts.
Unlike last year, when a major tax proposal was unveiled at the beginning of the legislative session, this year’s will come out with little time for General Assembly debate.
Typically, bills must pass one chamber by the 30th day of a session. But that rule is waived when proposals go through special joint committees. The tax plan would go through the Special Joint Committee on Revenue Structure.
Monday is the 34th day of the 40-day legislative session. Lawmakers may be forced to vote on the plan by Wednesday or Thursday.
“This isn’t the ideal way to make tax policy,” said Alan Essig, a former state budget analyst and executive director of the Georgia Budget and Policy Institute. Essig has been a frequent critic of special-interest tax breaks.
House Majority Leader Larry O’Neal, R-Bonaire, a member of the special tax committee, said legislative leaders aren’t rushing the plan out to stifle debate.
“There is no political strategy at work here that we are going to take anybody by surprise,” O’Neal said.
Republican leaders have been working informally in consultation with the governor’s office to hear from lobbyists and others who could be affected by proposed changes, such as local governments and manufacturers, he said.
Democrats say they have largely been left out of the discussion. House Minority Leader Stacey Abrams, D-Atlanta, the chamber’s ranking Democrat, said she hasn’t been consulted.
“I think any substantial changes made in our tax code deserves and requires full and robust debate,” Abrams said.
Sen. Steve Thompson, D-Marietta, a member of the tax committee, said last week he didn’t know what was being proposed. “I hate to see it this late [in the session],” Thompson said.
But there is a long precedent for last-minute tax deals at the Statehouse. The less time for debate and review, the less chance lobbyists and opponents can mount opposition.
Special-interest tax cuts are routinely tacked onto legislation in the final few days of legislative sessions. Bigger tax deals have come up at the last minute, too.
In 2003, then-Gov. Sonny Perdue and legislative leaders came out with a plan two days before the end of the session that included cutting taxes on retirement income for seniors and raising cigarette taxes. The proposal passed both chambers on the final day of the 2003 session. A Perdue bill to raise cigarette taxes had been thwarted in the House earlier.
A week before the 2007 session ended, legislative leaders introduced and passed through the General Assembly a budget that included a $142 million property tax rebate. Perdue vetoed it the night before the session ended.
Last year, lawmakers tacked a potentially huge sales tax break for developers of sports complexes, tourism attractions and other facilities onto an unrelated bill and passed it on the final day of the session.
A special council studied Georgia’s tax system in 2010 and released a series of proposals early in the 2011 session that included lower income taxes, expanding the sales tax to all groceries and some services, and the manufacturers’ sales tax exemption.
The proposals were heavily lobbied, and by the end of the session, the package had changed substantially. Ultimately, the effort was scuttled.
This year, passage of a tax plan has been slowed by attempts to figure out how to pay for it.
Early in the session, Deal announced support for eliminating the sales tax on energy used by manufacturers. Most states either exempt the tax or don’t charge the full rate. It is particularly important in cities such as Dalton, a major carpet manufacturing hub.
But county officials said that would cost state and local governments $250 million or more in revenue each year, and Deal’s budget didn’t take that into account. Part of the sales tax goes to the state, part to local governments.
Clint Mueller, lobbyist for the Association County Commissioners of Georgia, said if the energy tax exemption passes, counties want the bill to include a provision allowing local governments to vote on an excise tax to replace it. For some counties, he said, eliminating sales taxes on energy used in manufacturing could cause a major financial problem.
“If we don’t have a mechanism to replace the revenue, that is a big hit to our budget, and we have to figure out how to absorb that hit,” Mueller said. “County digests continue to go down every year, a lot of counties are furloughing [employees].”
Phasing out property taxes on cars eventually would cost county governments hundreds of millions of dollars. However, lawmakers probably would build in a mechanism so that the state makes up at least some of the loss to counties.
Overall, officials with knowledge of the proposals said the total package of tax cuts and increases would result in the state taking in slightly more money over the next few years.
However, over the long haul, the net loss to the state could climb into the hundreds of millions of dollars by the end of this decade.
Mickey Channell, R-Greensboro, chairman of the Special Joint Committee on Revenue Structure, promised the plan won’t include anything that hasn’t been publicly debated in the past. The manufacturers, car and income taxes were all discussed during last year’s tax debate.
“We’ve been working on this for two years,” he said. “There won’t be anything that hasn’t been discussed already.”
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