The idea of doing away with the state income tax sounds good at first blush. The same goes for getting rid of the tax breaks known as loopholes for various taxpayers. But as usual, the devil is in the details.
State Sen. Hunter Hill (R-Smyrna) started the latest talk about sweeping changes in state tax laws. He told the Smyrna Business Association last week that the new consumption tax plan would have to be revenue neutral — meaning that about the same amount of taxes would have be collected as is done in the existing system.
“You’ve got to expand the revenue base on the consumption side, which makes sense,” Rep. Hill said. Only 30 percent of “consumptive services and items” in the state economy is subject to the sales tax although 70 percent is consumption-based, he said. And that means, he said, the state sales tax would have to be raised from its current four percent to six or seven percent. That’s a big and costly jump.
Hill’s proposal amounts to a revised version of the unsuccessful effort by the Special Council on Tax Reform and Fairness for Georgians created by then-Gov. Sonny Perdue in 2010. After much study and discussion, the blue-ribbon council recommended a rewrite of the tax code including an expansion of the sales tax and lowering of the income tax.
The council proposed to add the sales tax to a long list of goods and services ranging from groceries to garbage pickup and lawn care services, dry cleaning, haircuts and styling, vehicle maintenance and repairs and casual sales of personal property. The group’s work was political dynamite and widely opposed. The anti-tax Americans for Tax Reform used the council’s own figures to argue that taxes would increase far more than the proposed cuts.
Tax “reformers” are always eyeing the sales tax exemption on groceries, a legacy of Zell Miller who pushed it through in 1996. This saves Georgians millions — an estimated $600 million in back in 2010 — and no doubt makes a lot of difference to people with low and modest incomes, as well as many retirees. Rep. Stacey Evans (D-Smyrna), after hearing Rep. Hill’s proposal, said his calling the grocery sales tax exemption a “loophole” took her aback “because that’s how a lot of our families in Georgia are able to afford to eat.”
One of the arguments by proponents of the consumption tax idea is that more businesses will find Georgia more attractive. But wait a minute. Just last November, Georgia’s business climate was ranked the best in the nation by Site Selection magazine. Touche.
Having zero income tax would be great, but a change to consumption tax only is an idea whose time has not yet come in Georgia, in my view.
Reminder: When legislators start talking about fixing our tax system, grab your wallet.