Georgia’s high octane tax reform initiative flamed out last year. A moderate approach seems possible this year and likely soon with the Legislature having completed half of its calendar.
“I call state income tax the opiate of state government,” says Jonathan Williams, director of the tax and fiscal policy task force at the American Legislative Exchange Council. “When times are good personal income tax revenue and corporate income tax revenue skyrocket. When times are bad it plummets down the drain.”
Governor Nathan Deal described his preliminary reform agenda in early January: Elimination of the sales tax used on energy in manufacturing, sales and use tax exemptions for construction materials used in major regional projects and changes to state jobs tax credits programs. The Governor did not propose reducing the 6 percent maximum personal income tax rate.
Personal income tax generates more than half of all state revenue. Proponents contend a tax rate reduction would make the state more competitive against nearby states like Florida and Tennessee that levy no personal income tax. Opponents contend personal income tax rates play a minor role in economic competitiveness.
Nine states currently levy no state income tax, down from 20 states at its highest 50 years ago. Many states were rethinking how to position personal income taxes against all other revenue sources even before the recent recession tossed their budgets into chaos.
Williams says Georgia is falling behind and needs to make some moves. “Georgia has done well over the years in terms of competitiveness but there are (states) on each side of your border, one to the north and one to the south that don’t have personal income taxes,” Williams said. “When you’re sandwiched between states like that it’s really dangerous.”
Williams is co-author of “Rich States, Poor States,” the annual ALEC analysis that ranks states according to the impact of tax strategies on their economic competitiveness. Georgia fell to 11th nationally last year after three consecutive years at eighth. Williams suggested that the newest ranking due this spring could once again find Georgia slipping on the list.
“When we work with legislators we try to remind them, you do not make policy changes in a vacuum,” Williams told a meeting of Americans for Prosperity – Georgia chapter members in Atlanta. “Every time you change your policy for better or worse you are impacting your region, how you compete with your regional states and how you compete all across the country.
“You’ve fallen out of the Top Ten not necessarily because you’ve done that many things wrong. It’s just that other states are doing things better,” Williams said. “They are growing while Georgia is in a way staying stagnant and by staying stagnant it is kind of falling down the ladder in terms of competitiveness.”
“Six percent on corporate and personal is not bad,” Williams said. “You’re certainly not in the neighborhood of New York (12.6 percent) and California (10.3 percent) and some of those states, but when you’re sandwiched between two zeroes, 6 percent looks awfully high.
“As nice as the quality of life is here, as nice as a lot of the amenities that you have in the state (are), that’s a pretty direct incentive. Why would you locate in a 6 percent state when you have 0 percent right across the border?”
(Mike Klein is Editor at the Georgia Public Policy Foundation)
Moments after Nathan Deal became the 82nd Governor of Georgia on Monday afternoon he predicted a more limited government that perhaps chooses different missions by vowing, “We must justify every cent that government extracts from our society.”
Deal’s inaugural address was predictably short on program specifics. Those begin to come this week when the governor delivers his State of the State address and releases his first proposed budget, both on Wednesday. His address focused on statewide unemployment, corrections system reform, education, the HOPE scholarship, transportation, water and health care.
“The lingering pain of this great recession in which we are still engulfed has underscored the urgency of re-examining the role of government in our lives,” said Deal, who served nine terms in Congress. “The evolution of society has infringed on much of the elbow room that our ancestors enjoyed, and government has been asked to regulate our actions as we bump into each other in our frantic search for success.
“In times of economic prosperity we often ignore the costs and inconvenience of governmental paternalism. But in times such as these with more than one of every ten of our employable citizens out of work we must justify every cent that government extracts from our economy.”
Deal said one-in-13 Georgians is under correctional control, meaning in custody, on probation or on parole, and he said it costs $3 million per day to operate the Department of Corrections. “Yet every day criminals continue to inflict violence on our citizens and an alarming number of the perpetrators are juveniles,” the governor said.
“College students should be concerned about their grades, not whether they are going to be mugged on their way home from class. Visitors to our cities should be treated as welcome guests, and protected. Families should not live in fear of gang violence or drive-by shootings. But most of all, our dedicated law enforcement officers must not be target for criminals. Anyone who harms one of them harms us all.”
The former state legislator from Gainesville promised violent and repeat offenders that, “We will make you pay for your crimes. For other offenders who want to change their lives, we will provide the opportunity to do so with day reporting centers, drug, DUI and mental health courts, and expanded probation and treatment options.
“As a state we cannot afford to have so many of our citizens waste their lives because of addictions,” Deal said. “It is draining our state treasury and it is depleting our work force.”
Deal praised his predecessors and “dedicated teachers and educators” but he noted Georgia K-12 public education “has failed to make the progress that we need. This failure is a stain on our efforts to recruit businesses to our state and is a contributing factor to the frightening crime statistics that I previously mentioned. High dropout rates and low graduation percentages are incompatible with my vision for the future of the state of Georgia.”
Deal sought to assure families who wonder about the long-term future of the financially challenged HOPE scholarship program. “”I was not elected to make easy decisions but difficult ones,” Deal said. “In this legislative session we will save HOPE for future generations.”
Deal emphasized the Savannah and Brunswick ports are Georgia’s link to an ever expanding international trade community. “We will do our part to deepen the Savannah port in order to accommodate the larger vessels that will soon pass through the Panama Canal, but we must do more. Our rail capacity and cargo routes must be improved and expanded. We must not miss this opportunity to provide jobs for Georgians.”
The governor described Atlanta metro highway congestion as “a deterrent to job growth in the region. If we do not solve this problem soon we will lose the businesses who want to expand or locate in our state.”
Deal also inherits the Tri-State Water War. A federal court judge ruled Alabama, Florida and Georgia must reach agreement before July 2012 or Congress will impose a solution. All three states have new Republican governors, but that does not ensure agreement. All three states had Republican governors during Sonny Perdue’s eight years as Georgia governor.
Deal vowed the state will continue to negotiate but will also develop regional reservoirs. “We are blessed with abundant water resources and we must use them wisely.”
The new governor was blunt in his assessment of federal health care policy, widely known as Obamacare. “As governor I will resist the efforts of the federal government to mandate its solutions on our people, our businesses and our state government.”
The new governor assumed office three days after a special council issued the state’s most dramatic tax reform proposals in eighty years. Legislative approval would reduce personal and corporate income tax rates, and make significant changes to sales taxes on products and services, including collection of sales tax on groceries. He did not mention the tax proposals.
Fiscal issues will dominate every General Assembly conversation this session and dictate which priorities prevail. The next state budget faces an estimated $2 billion shortfall. Georgia will lose $1.2 billion in federal stimulus funds. It must also repay $425 million to the federal government because the state has been borrowing federal dollars to write unemployment checks.
Deal inherits an economy that is taking tentative steps to rebound from recession. Georgia’s 10.1% unemployment rate is still several percentage points higher than the national average. State government revenue that plunged over two fiscal years has begun to recover with seven consecutive monthly year-to-year increases, but improvement will not balance the budget.
Deal returned to his leaner, more focused model of government in concluding remarks. “State government should not be expected to provide for us what we can provide for ourselves,” he said. “Let us refocus state government on its core responsibilities and relieve our taxpayers of unnecessary programs. Let us be frugal and wise. Let us restore the confidence of our citizens in a government that is limited and efficient.”
The inaugural ceremony was held at the House chamber at the State Capitol. Overnight snow and ice that paralyzed Georgia caused cancellation of the planned outside ceremony, a morning church service and the Philips Arena evening gala in downtown Atlanta.
Deal was joined by his wife Sandra. Their daughter Katie sang “Georgia On My Mind.” Their son, Hall County Superior Court Judge Jason Deal, administered the 47-word oath of office. Dignitaries in the state House chamber included U.S. Senator Johnny Isakson, Congressman Phil Gingrey and Atlanta Mayor Kasim Reed.
Mike Klein is Editor at the Georgia Public Policy Foundation.
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