When the legislature convenes again at the Gold Dome in January 2015, it will be time for tax reform in Georgia.
Several years ago, a grand plan for tax reform was attempted, but got caught up in legislative and lobbyist wrangling. The same thing could happen again, unless the people push for common-sense reforms.
We do not live in a vacuum. Sister states in our region compete for jobs and talent, and we need to be able to compete with them on tax policy.
North Carolina income tax changes are being phased in—the result of tax reform legislation enacted two years ago. This may well render Georgia’s economy less competitive. Florida, our neighbor to the South, has no income tax. Tennessee has no real income tax, only a tax on interest and dividends. Alabama’s top income tax rate is a percentage point lower than Georgia’s, while South Carolina’s top rate is a point higher. The Palmetto State is the only state in our region with a higher rate than Georgia, and that’s likely to change that with neighboring states lowering their rates. But another factor in South Carolina is that the state’s median income is lower than Georgia’s, so an income tax there takes less of a bite out of an average household budget.
It’s past time for Georgia legislators to act to maintain a strong pro-growth economic climate in Georgia by simplifying and streamlining the tax code. And it’s time for the tax preferences and carve-outs for favored industries to go.
Georgia’s income tax should be cut and the sales tax base should be broadened so income tax rates can be lowered. Simplifying Georgia’s tax system would make our state more competitive with nearby states, thereby attracting more businesses and jobs to Georgia.
According to Joel Foster, communications and grassroots coordinator for Americans For Prosperity Georgia, one of the grassroots groups pushing for a change, “In 2010, the net income of Georgia passthrough businesses comprised 54 percent of all net business income in Georgia. [“Passthrough businesses” refers to small businesses that file taxes under the individual income tax.] A reduction in the personal income tax rate is a reduction on more than half of all the business income in our state. Georgia’s economy is driven by small business and an income tax reduction will be one of the greatest shots in the arm to prosperity in the Peach State.”
The small business community is the engine of job creation, and a tax change of this nature will jump-start employment. Taxing income discourages hard work and destroys incentives to work a little harder to earn a little more. Why earn extra income if it will be taxed away? With an income tax cut, an incentive is restored for working men and women to work a little harder and keep a little more of their hard-earned money. And this is a good thing. It will encourage an increase in personal incomes and a higher level of consumer spending, which will lead to increased tax receipts from the sales tax, and possibly even higher revenues from income taxes, even though the rate would be lower. That was the result of President Reagan’s tax cuts of 1981 and the tax simplification that occurred under Reagan in 1986.
Business groups, people who work hard for a living, economic conservatives and some tea party groups will likely support an income tax cut coupled with a slight rise in sales taxes. Marietta-based Georgia Tea Party is on the record as supporting a shift from income taxes to consumption taxes, or—if the opportunity presents itself—the elimination of all income taxes. And Georgia Tea Party is not alone.
Everyone knows that the income tax—especially the federal income tax—is intrusive and burdensome. It’s time Georgia took a step forward to simplify and streamline its tax system by cutting income taxes and broadening the base of the sales tax to fund state government. Not only will it benefit our state, but this reform will set an example for the politicians in Washington, D.C., that isolated island of inefficiency and punitive taxes.
Georgia voters need to be talking to state legislative candidates in this election season and asking them to support fundamental tax reform when the General Assembly convenes in the new year.