State News

July 15, 2013

Push for tax reform likely to resurface in Ga.

ATLANTA — After a broad proposal to overhaul Georgia’s tax code failed a few years ago, state lawmakers returned the next year with a far narrower agenda and eliminated a handful of tax obligations, including the unpopular “birthday tax” on cars and trucks.

At the time, there was a promise that more reform was coming. Now, after a legislative session largely devoid of a broad discussion on taxes, there are signs that conservative groups plan to push for more action next year. In an election year, tax reform is likely to become an issue both at the state Capitol and on the campaign trail.

“There definitely is a need for tax reform,” said Virginia Galloway, director of the Americans for Prosperity Foundation-Georgia, a conservative group favoring a reduction in taxes, spending and regulations. “Georgia is not in bad shape right now compared to other states, but other states are continuing to reform their taxes so if we stand still, we actually go backward.”

Those supporting reform say Georgia must become more tax competitive to lure businesses to the state. They note states such as Florida and Tennessee that don’t tax personal income. Although lowering taxes or eliminating the income tax altogether remains popular among the state’s Republican leaders, the reality of governing has prompted a measure of caution.

House Speaker David Ralston said he was unsure how much of a priority tax reform would be in next year’s legislative session.

“There is a lot of interest out there in looking at the income tax and going to either a phased down or toward an elimination of that,” said Ralston, R-Blue Ridge. “I don’t think that’s something that is going to happen tomorrow or next week or overnight, but I think it is something that does merit us having some discussion.”

Asked if he would support eliminating the state income tax, Ralston said lawmakers should be “very, very careful” in the current economic climate.

“You have to keep in mind we’re still in a very sensitive budget period here in the state,” he added.

With state revenues improving, a set of bills active in the state Senate could provide an opening for debate.

One, sponsored by Senate President Pro Tem David Shafer, R-Duluth, would place a constitutional amendment before voters to ban any increase of the state income tax, currently at 6 percent. A second, also sponsored by Shafer, would ask voters to prohibit state lawmakers from increasing the state or local sales tax unless a referendum is passed on infrastructure projects or lawmakers authorizing an increase do so in conjunction with a decrease in the state income tax rate.

Gov. Nathan Deal has said there’s no need to worry about increases while he’s in office.

“The best cap on the state income tax is the veto pen that I hold, and it’s got a cap on it,” Deal said. “And it’s going to be a cap on raising any income tax in our state.”

The governor said he also is concerned about budget realities, saying about 50 percent of state revenue comes from the state income tax and about 30 to 38 percent from the sales tax. He said states without an income tax make up the difference with other taxes and argued Georgians have a lower overall tax burden.

The issue is likely to surface in the 2014 Republican primary for governor. Dalton Mayor David Pennington, who plans to challenge Deal, has called for a reduction in the state income tax and moving toward eliminating it. Meanwhile, Deal said he’s asked lawmakers to submit any tax proposals to a state panel for review before legislation is introduced.

“It is dangerous in an election year to start talking about tax cuts unless you understand the full implications,” Deal said.

Democrats were able to halt a much broader proposal to change the state’s tax code in 2011 by arguing it would have increased the tax burden on the middle class.

“I think we should talk about tax reform, but I think we’re having the wrong conversation,” said House Minority Leader Stacey Abrams, D-Atlanta. “Tax reform should not be about eliminating the most stable source of revenue but a conversation about whether we’re taxing the right things.”

Abrams said a tax on groceries would be a mistake, arguing any economic benefit would be lost because demand would increase for social services such as food stamps. Abrams said she was open to looking at taxes on services but doesn’t think it makes sense to do an across-the-board reduction on the state income tax.

“We have to be very conscious and very candid about the fact that if we want better roads, less traffic, better schools — then its going to cost more than we’re currently willing to spend,” Abrams said.

Abrams said she disagrees with claims that Georgia needs to lower the state income tax rate to stay competitive and believes companies care more about infrastructure and education.

Galloway said she hopes lawmakers would consider a host of options, including a tax on groceries and services combined with a lower overall rate.

“We really need to lower it at least,” Galloway said. “Everybody thinks they want to get rid of income tax and all of us would love to get rid of income tax, but it might be more realistic to take a win where we can get it.”

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