Commentary is slowly coming in on the proposal from the Special Council on Tax Reform and Fairness for Georgians. E. Frank Stephenson, chairman of the Economics Department at Berry College, has added his thoughts on the proposal in a piece from the Georgia Public Policy Foundation.
Professor Stephenson and I traded e-mails over the weekend, and we both agree that broadening the tax base is a good idea. But I see it as a significant tax hike, he sees it as a step in the right direction. And this paragraph below is one of the reasons:
The recommendations also call for avoiding taxing business inputs. Thus current exemptions for business inputs would remain and new exemptions would be created for energy used in manufacturing, mining and agriculture. This would make Georgia’s business climate more attractive and avoids the tax compounding that arises from taxing both inputs and outputs of firms with multi-stage production processes. These changes should also reduce businesses’ cost of tax compliance.
The tax council gave no indication as to the impact of these credits, but I can’t see these credits having a significant enough impact to take the wind out of the net tax increase even after the income tax hikes are fully phased-in.
Professor Stephenson also notes that it is a tax hike, at least in the short term:
The recommendations do produce one cause for concern: The council calls for the broadening of the sales tax to become effective July 1, 2011, with the income tax reductions being phased in beginning January 1, 2012. The net effect appears to be a significant tax hike over the short run that diminishes somewhat as the income tax cuts are fully phased in. Immediately implementing all of the income tax cuts and adding a tax-expenditure limitation to the council’s recommendations would help reassure Georgians that these tax reforms are not a stealth tax increase.
Even if the income tax provisions were immediately implemented in FY 2012, as Professor Stephenson wants, this would still be a net tax hike of $474 million (using the numbers provided by the tax council; numbers below in millions). And like I said, it’s hard to imagine the state paying out that much money in tax credits to make this a revenue neutral proposal; among the reasons is because a tax credit is essentially a spending program. The legislature appropriates a specified amount of money to pay for these credits.
Remember, the legislation did away with the Homeowners Tax Relief Grant program in 2009 because at a cost of $428 million per year, it was on the state’s budget; especially during a recession. I just don’t believe that they are going to be able to create a new credit to make this revenue neutral.
Low-End Estimate for FY 2012 (based on tax council proposal)
| Council’s Recommendation | Revenue Estimate | Personal Income Tax Cut | -650 | Corporate Income Tax Cut | -100 | Eliminating Seniors Income Tax Exemption | 272 | Eliminating Grocery Sales Tax Exemption | 472 | Increasing Cigarette Tax | 120 | Ending Sales Tax Holiday | 36 | Taxing Causal Sales | 151 | Taxing Personal Services | 247 | Taxing eCommerce | 410 | Enhance Communications Tax | 166 | Estimated Tax Revenues | 1,124 |
High-End Estimate for FY 2012 (based on tax council proposal)
| Council’s Recommendation | Revenue Estimate | Personal Income Tax Cut | -650 | Corporate Income Tax Cut | -100 | Eliminating Seniors Income Tax Exemption | 272 | Eliminating Grocery Sales Tax Exemption | 649 | Increasing Cigarette Tax | 120 | Ending Sales Tax Holiday | 36 | Taxing Causal Sales | 290 | Taxing Personal Services | 247 | Taxing eCommerce | 410 | Enhance Communications Tax | 166 | Estimated Tax Revenues | 1,440 |
Low-End Estimates FY 2012 (income tax cuts immediately implemented)
| Council’s Recommendation | Revenue Estimate | Personal Income Tax Cut | -1,300 | Corporate Income Tax Cut | -100 | Eliminating Seniors Income Tax Exemption | 272 | Eliminating Grocery Sales Tax Exemption | 472 | Increasing Cigarette Tax | 120 | Ending Sales Tax Holiday | 36 | Taxing Causal Sales | 151 | Taxing Personal Services | 247 | Taxing eCommerce | 410 | Enhance Communications Tax | 166 | Estimated Tax Revenues | 474 |
High-End Estimates for FY 2012 (income tax cuts immediately implemented)
| Council’s Recommendation | Revenue Estimate | Personal Income Tax Cut | -1,300 | Corporate Income Tax Cut | -100 | Eliminating Seniors Income Tax Exemption | 272 | Eliminating Grocery Sales Tax Exemption | 649 | Increasing Cigarette Tax | 120 | Ending Sales Tax Holiday | 36 | Taxing Causal Sales | 290 | Taxing Personal Services | 247 | Taxing eCommerce | 410 | Enhance Communications Tax | 166 | Estimated Tax Revenues | 790 |
