It has become abundantly clear that the current tax system in Georgia will not produce the revenues to support requirements for our growing population. An expected short-fall of $1 billion to $2 billion is expected this fiscal year, and short-falls are expected to continue in future years if the tax system is not changed.
That’s why “The Special Council on Tax Reform and Fairness for Georgians” is so important.
The council was created by HB 1405 during the last session of the General Assembly to study the current tax codes and make recommendations for changes, if any, before the 2011 Session begins. For those who have not followed the proceedings, here is a summary.
The council has met four times over the past two months with many local governments, business owners, lobbyists and university professors testifying as to changes which should and should not be made.
Two things sounded loud and clear are:
- That the sales tax base should be broadened to include some services; and
2. That sales tax should not be charged on raw materials and energy to produce finished products.
Jeff Humphreys (UGA economist) said: “We are best served by a tax system that creates as few distortions in economic decision-making as possible, and taxing consumption (rather than savings and investment) is preferable.”
Roger Tutterow of Mercer University noted the decline of goods production and the rise of services. In terms of state spending, he commented that the vast majority of the state budget is devoted to education and health care, whose costs seldom drop. Overall, a wider tax base at the lowest rate is preferred.
Christine Ries of Georgia Tech said: “You will get less of whatever you tax.”
She mentioned that nine states operate without a personal income tax (two of those states border Georgia: Florida and Tennessee).
Ries cautioned that states that tax a small and shrinking group/sector often overestimate the revenue from the tax change and distort the tax base (such as increasing cigarette tax resulted in fewer smokers).
A number of states are shifting away from taxing things we want (like income, savings, and capital) to broader-based consumption taxes. Less distortion in our tax system leads to greater jobs, with the most distortion being taxes on savings and investments. She claimed there is lots of productivity we are not seeing because of the tax structure.
David Sjoquist (Georgia State University) said that we have a fairly flat income tax, a narrow base for our sales tax, and a corporate tax, which is higher than other states. Georgia’s insurance premium tax is third highest in the nation, and the motor fuel tax (sometimes cited as being among the lowest) is not adjusted for inflation.
The meetings included presentations from persons representing the top three industries in Georgia: agribusiness, manufacturing and tourism.
John Krueger, senior vice president of public policy for the Georgia Chamber of Commerce, said that tax policy is one of the guiding principles that business considers in locating in Georgia. The other considerations are education, a trained workforce, transportation, the legal system and quality of life.
Bryan Tolar, vice president of public affairs with the Georgia Agribusiness Council, cited the importance of agribusiness to the state and our diverse agricultural base, with broilers ranking number one in farm gate value followed by eggs, cotton and a number of other products.
In 2008, 45 percent of manufacturing’s $182.5 billion output in Georgia was agribusiness related. Agribusiness created 351,000 jobs and generated (in 2008) $1.8 billion in state and local sales taxes. He also emphasized the importance of tax exemptions to agribusiness.
Roy Bowen, president of the Georgia Traditional Manufacturers Association said that manufacturing employs over 335,000 people - about 11 percent of the state’s nonfarm workforce.
However, Georgia has lost 247,000 manufacturing jobs over the last 10 years.
He cited the sales tax on energy used for manufacturing as a drawback in competing with other states. Energy is often second only to labor in costs incurred by manufacturers.
Greg Pierce of the Atlanta Convention and Visitors Bureau discussed the importance of the state’s hospitality industry, which employs 217,000 in the Atlanta area. Atlanta is the fourth largest convention center in the United States and has the sixth largest hotel portfolio with nearly 95,000 rooms.
There was agreement that the tax burden on business should remain low, competitive and easy to administer. Businesses like predictability, not dramatic changes. However, panelists did have suggestions for some changes.
Crosby, Council on State Taxation, noted that Georgia has a glaring problem with the lack of an independent tax forum where taxpayers can take their disputes. Mike Petrik, Tax Policy Committee of the Georgia Chamber of Commerce, pointed out that Georgia could improve in the sales tax areas — expanding the base to tax services is a good idea — exempt business inputs from the sales tax, and find a way to make compliance with workers’ compensation and unemployment taxes less burdensome for small businesses.
Still on the subject of taxes — I encourage those of you who vote in Dawson County to vote for the senior citizens tax relief referendums. They provide meaningful property tax relief.
When voting, remember that the school tax exemptions are on a separate special elections ballot.
When Lumpkin County voters approved similar legislation a few years ago, it passed by over 80 percent even though only some 15 percent of the folks in Lumpkin County are seniors.
Let me know what you think about some of the ideas discussed to solve our state revenue challenges. I can be reached at 689 N. Chestatee Street, Dahlonega, GA 30533; phone (706) 864-6589; e-mail email@example.com. Or contact Gerald Lewy at (706) 344-7788.