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Ga. lawmakers brace for battle over tax reform in 2016
Lowering income tax to raise sales tax could hurt poor, some claim
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More Take Home Pay Act

• Reduces income tax rate from 6 to 4 percent over three years, and corporate income tax from 6 to 5 percent.

• The bill would phase in a statewide grocery sales tax, plus additional taxes on cable and satellite communications, and on cigarettes.

• Continues sales tax exemptions for haircuts, nail care, dry cleaning and personal care services, as well as professional services such as doctors, lawyers, accountants, architects and engineers.

Two major tax reform proposals got a fresh airing in recent weeks as Georgia lawmakers prepare for what may be the biggest legislative battle of 2016.

State Republicans have rallied around calls to lower personal income taxes and offset that lost revenue with increases in sales taxes.

Rep. John Carson, R-Marietta, issued a press release this month responding to criticism of the More Take Home Pay Act, which he introduced this year but it stalled in the legislative session before receiving a vote.

The bill would reduce income tax rate from 6 to 4 percent over three years and corporate income taxes from 6 to 5 percent. It is widely seen as the blueprint for shaking up the state’s tax structure in 2016.

“This is the step in the right direction going forward,” Rep. Carl Rogers, R-Gainesville, said.

Meanwhile, the Georgia Budget & Policy Institute has released its own plan for tax reform to counter Carson’s proposals. That plan, for example, calls for targeting tax cuts to benefit low- and middle-income families.

One option is the earned income tax credit, which is modeled on a similar federal credit, that 26 states and the District of Columbia offer.

The GBPI reports that about 1.1 million Georgia households, or 28 percent of all state income tax filers, received the federal EITC in 2013.

Families making between $10,000 to $23,000 annually receive the largest credit, and the average federal EITC for Georgia recipients was $2,700 in 2013.

The tax fight is likely to hinge, in part, on the perception of which plan benefits which residents. While proponents argue that sales taxes are a more equitable way for government to generate revenue because everyone pays the same percentage, opponents say it unfairly shifts the tax burden to lower income residents.

“There’s a fundamental difference in how sales taxes and income taxes work,” said Wesley Tharpe, senior policy analyst with the GBPI. “Sales taxes fall more sharply on low- and middle-income families because they’re spending most of their income on the basics.”

Unlike the graduated federal income tax system — which is considered “progressive” because the more an individual earns, the greater percentage of their income that is taxed — state and local taxes are considered “regressive.”

While the wealthy pay a higher percentage in state income taxes, the middle-class and poor pay more in sales and excise taxes. That means the cost of basic necessities, everything from food to gas, hits the wallets and purses of low-income families much harder.

For example, Georgia’s richest 1 percent of residents, whose household income exceeds $432,000 a year, pay just 5.2 percent of their income in state and local taxes — income, sales and excise taxes together — according to a study from the Institute on Taxation & Economic Policy.

That rate actually grows as income falls, with the bottom 20 percent who earn less than $16,000 annually, paying 7.7 percent of their income in state and local taxes.

Tharpe said income taxes are counterweight to sales taxes by asking more from top earners. He argued that seniors on fixed incomes and low-wage workers in the construction, retail and hospitality industries would be hit hard by raising sales taxes and removing some exemptions on grocery taxes.

“This type of tax shift would raise taxes for many of those types of people,” Tharpe said.

Political conservatives say sales and consumption taxes help spur spending and job growth, and give individuals more choice in how much tax they are willing to pay.

And more of the proceeds from sales tax collections stay within local communities compared with income taxes, which are typically redistributed in statewide programs such as education and health care.

Tharpe, however, said lower income taxes places these big programs at risk. Personal income taxes account for 45 percent of state general fund revenue, or about $9.9 billion. Sales and use taxes account for 25 percent of revenue, or about $5.6 billion.

Rogers said that Georgia needs to begin phasing out its income tax to remain competitive with neighboring states that have lower rates or none at all.

Georgia voters have already capped the rate at 6 percent after passage of a ballot referendum in 2014.

Kansas made significant cuts to its personal income tax rates in recent years, and the result was whopping budget deficits to the tune of hundreds of millions of dollars.

Carson acknowledged the problem that state faces, arguing the real problem is Kansas did nothing to offset the lost revenue.

“Some have expressed concern over such a large initiative,” Carson said the press release. “I stand with them in total agreement that all efforts to change Georgia’s tax structure must be done in a way that will both protect our coveted AAA bond rating and ensure stable revenues for funding vital state programs, including education and health care.”

Rogers said it is critical that any changes to the state’s tax structure remain as close to revenue-neutral as possible. He understands it will take work to persuade people, whether high-income earners or the working-class, to cough up more at the cash register.

“We certainly don’t want to jeopardize that,” he added. “We’ve got to do something to offset the income tax that we’ll lose.”

More Take Home Pay Act

• Reduces income tax rate from 6 to 4 percent over three years, and corporate income tax from 6 to 5 percent.

• The bill would phase in a statewide grocery sales tax, plus additional taxes on cable and satellite communications, and on cigarettes.

• Continues sales tax exemptions for haircuts, nail care, dry cleaning and personal care services, as well as professional services such as doctors, lawyers, accountants, architects and engineers.

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