Mike Klein Online

Has Georgia Tax Reform Momentum Fallen Behind Other States?

Mike Klein

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 11^th 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)

February 24, 2012 - Posted by mikekleinonline | Uncategorized | American Legislative Exchange Council, Georgia Public Policy Foundation, Georgia Tax Reform, Mike Klein, Mike Klein Online, Tax Reform