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ALEC: Here’s How Georgia Could Improve Competitiveness

Mike Klein

Mike Klein

Georgia’s track record as a low-tax, pro-business, pro-growth state is absolute.  However, the state has been unable to enact an important threshold – elimination or at least a sizable reduction in the 6 percent maximum personal income tax rate – and that prevents Georgia from being considered at the top of states that have low-tax, pro-growth fiscal policies.

Today the American Legislative Council released its sixth annual “Rich States, Poor States”  economic competitiveness index report that evaluates states on 15 fiscal policy sectors that include tax rates, state regulations, right-to-work laws and size of the public workforce as a percentage of statewide population.  The ALEC formula rewards low-taxing, low-spending states, of which Georgia is one.

Georgia does well … ranked as the eighth best state nationally and up two spots from one year ago.  But therein is part of the challenge.  Georgia ranked eighth in the first ALEC report five years ago, then slipped several spots and only now has it reclaimed the eighth spot ranking.

To see that idea from another angle, ALEC does not consider Georgia has done enough with tax and regulation policies in five years to greatly improve its ranked position vs. other states.

Rich States, Poor States“Georgia has become one of the most Republican states in the country and it’s also become a very fiscally conservative state over the last 10 and 20 years,” said co-author Stephen Moore, during an ALEC conference call this week.  “If there’s a state that could eliminate its income tax it would be Georgia.  The table is set for that.  We’ve been pushing it for a long time.”

The 2010 Georgia Special Council on Tax Reform recommended elimination of most personal income tax deductions and adoption of the lowest possible revenue neutral income tax rate with 4 percent as the original target.  The Legislature has never come closer than almost voting on a bill that would have reduced the maximum personal income tax rate to 4.5 percent.  There was no personal income tax reform legislation during this year’s General Assembly.

Nine states do not collect personal income tax.  “I’ve always thought Georgia should be the next domino to fall especially because, who are your neighbors?” said Moore, who is a member of the Wall Street Journal editorial board.  “You’ve got Florida and Tennessee, both which have no income tax.  You’re what we call an income tax sandwich.  You’re sandwiched between two states that don’t have (state personal income tax) so that puts you at a competitive disadvantage.”

Moore, ALEC’s Jonathan Williams and economist Arthur Laffer are the co-authors.  “Georgia can do some other things that would not necessarily cost from a revenue perspective,” said Williams, who is director of ALEC’s Center for State Fiscal Reform.  He cited additional pension plan reform, requiring a super majority legislative vote for tax increases, and mandatory government spending limits, along with reduced state liability and workmen’s compensation costs.

The 2013 edition of ”Rich States, Poor States” also highlights funding and obligation problems posed by public sector pension plans, which the non-partisan State Budget Solutions says are underfunded by some $4.6 trillion.  Williams said the federal government recently filed suit against Illinois “for basically fraudulent pension accounting.  We find that issue in a lot of states.”

(Mike Klein is Editor at the Georgia Public Policy Foundation.    Click here to read “Rich States, Poor States.”  Click here to watch Stephen Moore speak to the Policy Foundation 2013 annual dinner on the Foundation YouTube channel.)

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May 23, 2013 Posted by | Uncategorized | , , , , , , , , | Leave a comment

The Serious Challenge to Georgia’s Low-Tax Economic Strategy

Mike Klein

Georgia built its economic strategy over the past couple decades around being a good place to raise a family with low taxes and a business friendly environment.  But others are getting pretty good at using similar strategies and Georgia should feel none too comfortable with its tenth place national ranking in an economic strategies and performance report this week from the American Legislative Exchange Council.

“Georgia is still among the better states.  Certainly you are not in the crisis category,” ALEC economist Jonathan Williams said during a telephone interview.  “However, it does have some issues in terms of mediocrity.”  Georgia’s 6% state personal income tax rate is about in the middle of all states, but it is positioned alongside Tennessee and Florida that do not collect income tax.  “That does not help your marketing,” Williams said.

The fifth edition of  “Rich States, Poor States” is a robust work co-authored by three conservative economists — Arthur Laffer who is often described as the father of supply side economics, Wall Street Journal editorial board economist Stephen Moore and Williams who directs the ALEC state fiscal reform and tax policy initiatives. The annual report compares state strategies in 15 tax, regulatory and labor law categories.

Southern states earned half of the top 16 spots with Virginia highest at third.  There is a cluster of southern power at ten through 16 with Georgia, Arkansas, Tennessee, Florida, Oklahoma, Mississippi and Texas consecutively.  Georgia ranked well in several soft categories but ALEC said the state is very much middle-of-pack in several high profile tax categories and Georgia has a ten-year trend in three important categories that you would not want to emphasize in a marketing plan.

The ALEC study released Wednesday placed Georgia first nationally (often tied with others) in categories like not imposing estate and inheritance taxes, requiring that employers pay only the lowest federal minimum wage of $7.25 per hour, being a right-to-work state and the amount of personal tax burden for each $1,000 of personal income.

Georgia ranked lower in total sales tax burden (36th), average workers’ compensation costs (27th), top personal income tax rate (25th), personal income tax progressivity (24th), total property tax burden (23rd), public employees per 10,000 population (21st), and top corporate income tax rate (15th).  Tax law reforms passed by this year’s legislature that include the elimination of sales taxes paid on energy used in manufacturing and extending sales tax to more online purchases would not be considered until next year’s sixth edition of “Rich States, Poor States.

Arthur Laffer

“There are lots of things that affect states besides their own economic policies,” Laffer said during ALEC’s national conference call.  “What happens to neighboring states, what happens to the U.S., oil prices and all sorts of other stuff happens.  What we’re trying to look at here is how these state and local governments are doing and how they influence growth.”

The ALEC study includes a ten-year backward-looking measurement of domestic migration, non-farm payroll and personal income per capita.   Isolating those three categories, ALEC ranked Georgia 33rd nationally during the decade that ended in 2010.   Georgia ranked fifth nationally with strong population growth of 552,000 that earned the state one new congressional seat.  But growth spiked in 2006 at some 120,000 new Georgians, then it quickly declined during the recession and there was almost no net growth during 2010.

The ten-year trend showed a 2.3% reduction in Georgia non-farm payroll employment; that placed the state 34th nationally.  Texas non-farm payroll grew 11.5% during ten years, best in the south.  Virginia grew 4.5%, Oklahoma 3.5%, Florida 2.9% and Arkansas 1.1%.  North Carolina dropped nine-tenths of 1 percent followed by declines in Louisiana 1.3%, South Carolina 2.6%, Alabama 3.2%, Tennessee 3.8%, and Mississippi 5.4%.

Georgia personal income per capita grew 23% during the past decade and that was 48thnationally.  Other southern states grew more;  Louisiana by 58%, Arkansas 45.3%, Mississippi 45.1%, Oklahoma 44.4%, Virginia 39.4%, Alabama 39%, Texas 34%, Tennessee 32.2%, Florida 31.6%, South Carolina 30%, and North Carolina 25.7%.

Georgia non-farm payroll employment and personal income per capita numbers are frustrating because the state markets itself as a good place to grow intellectual equity companies in the high-tech, health and science sectors and to establish new manufacturing such as KIA in West Point and Caterpillar coming to the Athens area.

ALEC likes to highlight “Cheerful News from the States.”  During Wednesday’s national conference call Laffer said bipartisan political leaders in his new home state of Tennessee have agreed to abolish estate and gift taxes.  Nine states including Tennessee charge no state income tax.  ALEC named Oklahoma, Kansas and Missouri among states that are studying how to abolish their personal income taxes.  A 2010 state special council on tax reform recommended reducing the Georgia state income tax but the idea has not been able to move forward.

“Rich States, Poor States” also has its own Facebook page.

(Mike Klein is Editor at the Georgia Public Policy Foundation)

April 11, 2012 Posted by | Uncategorized | , , , , , | Leave a comment

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 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)

February 24, 2012 Posted by | Uncategorized | , , , , , | Leave a comment

Long Awaited Criminal Justice Reform Bill Expected This Week

Mike Klein

Georgia’s criminal justice reform initiative has flown stealth-like under the radar since November when a special council delivered its report.  That will change soon, perhaps this week, with the introduction of legislation that will propose the greatest change since get tough policies enacted in the 1980’s and 90’s caused the Georgia prison population to swell beyond its walls.

What you should expect from legislation – we are hearing it could be almost 100 pages long – was the focus of an American Legislative Exchange Council criminal justice reform panel held last week in Atlanta.  “Eighty million dollars to build one prison in Georgia – that is the cost of bricks and mortar, not the cost of staffing,” said Georgia Court of Appeals Judge Michael Boggs.

“This may have come about as the result of a fiscal crisis in this nation and in this state.  Maybe that’s why we got where we got, because we recognize we don’t have the money,” said Boggs, who serves on the state special council.  “But at the end of the day, these are laudable goals.”

The goals to which Boggs referred are primarily these: Slow down exponential growth in the state prison population, treat rather than incarcerate people who have addiction issues but not criminal issues, do both in such a way that public safety is not threatened, reinvest dollars that are currently going into prisons into treatment programs, and then continually re-evaluate it.

(Click here to review the Special Council on Criminal Justice Reform report.)

Criminal justice system reform has become one of the better examples of national political bi-partisanship as states realize budgets can no longer accommodate ever expanding corrections costs. Georgia’s annual expense has swollen from $500 million per year to $1.1 billion in 20 years.  Almost 20 states have enacted or are currently considering substantial reforms.

ALEC, the Pew Center on the States, the National Conference of State Legislatures and other public policy organizations are all focused intently on criminal justice.  Last week the Georgia Public Policy Foundation published a state-focused issues analysis that is available online.

Criminal justice reform has its own rock stars – Texas Republican state Rep. Jerry Madden and his Democratic counterpart Sen. John Whitmire.  Starting five years ago they put conventional partisan politics aside to craft a new corrections model that enabled Texas to slow down prison population growth and reduce anticipated state outlays by hundreds of millions of dollars.

ALEC brought Madden to Atlanta – one of several visits he has made since last year to confer with state legislators, the judicial branch and others who are designing Georgia justice reform.

“How many of you would rather spend money on things like schools and highways or tax reduction or something other than spending it on building prisons?” Madden said.  “It is easier for a Red State to do this than a Blue State.  It’s easier because nobody thinks Georgia is soft on crime.  I don’t believe it and nationally nobody is going to believe it.” (Madden discussed criminal justice reform at the 2010 Public Policy Foundation legislative briefing conference.)

Georgia’s prison population – less than 30,000 twenty years ago – is anticipated to reach at least 60,000 within five years if nothing about the state criminal justice system changes.  Prison system expense is the second fastest growing segment of the state budget behind Medicaid.  “This is sucking up a lot of our money,” state Sen. Bill Cowsert told the ALEC gathering.

Two popular get-tough ideas are being challenged; A) Do the time, do the crime, and; B) Lock them up, throw away the key.  That is because another idea – you can rehabilitate almost anyone by having them do time – has proven wrong.  “They don’t learn their lesson,” Cowsert said. “It is not working to just lock them up and throw away the key for a certain length of time.”

Georgia has a 30 percent recidivism rate – almost one-third of released inmates return to prison within three years of their release date.  Or to consider that from another angle, our $1.1 billion annual corrections investment has a 30 percent failure rate.  Recidivism rates are lower – between 7 and 13 percent – when approved offenders participate in accountability courts that are most often used with personal drug use offenders who are not considered a threat.

“We all know you don’t throw water on a grease fire,” Rep Jay Neal told the ALEC audience.   “Now we know you don’t throw the addict into prison and think you’re going to correct behavior.”  Mandatory treatment combined with very strict – sometimes electronic — monitoring and drug testing are possible options with incarceration still on the table for noncompliant offenders.

Georgia currently has just 33 accountability courts; one reason is because public and private sector treatment options are insufficient.  “You can’t have a felony post-adjudication drug court without having treatment options,” said Judge Boggs.  “In rural Georgia, that’s hard to come by.”

The state also has just 13 day reporting centers capable of serving about 200 people each.

Governor Nathan Deal’s criminal justice reform cards are on the table in his proposed budget: $35.2 million for additional prison beds, $10 million for accountability courts expansion, $5.7 million to convert three pre-release centers to residential substance abuse treatment centers and $1.4 million to fund additional parole officers.

Much greater use of parole is another idea whose time might have come.  Georgia has 22,000 on parole, dramatically fewer than its 156,000 on probation population.  Mandatory sentences that must be fully served are the reason for the disparity.  But in the wake of do the crime, do the time sentencing inmates have been routinely released without post-prison support.

“We lock them up with criminals and when they get out five years later they’re still addicted, except now they have a felony on their record which makes it more difficult for them,” Neal said, “and they spend the last five years in graduate school learning how to be a true criminal, and they weren’t a criminal when we sent them there.  Then we wonder why the recidivism rate continues to be a problem.”

Neal said slightly reducing some prison sentences and combining that with mandatory parole would be preferable to simply releasing inmates into the community “with no guidance, no direction, no accountability, no supervision, you’re just turned loose.”

The special council on criminal justice reform worked for six months. “Criminal justice reform is not a one-time fix in this session of the General Assembly,” Judge Boggs acknowledged.  “It is an ongoing process.”  In fact, Governor Deal kept the council intact for further unspecified work ahead.

“It’s probably not going to be a package where everybody is going to say I like everything in here,” state Rep. Neal said.  “We have to be careful that we don’t let individuals who don’t like one piece convince us that because of that one piece it’s not a good package.”

“The last thing we want to do is be light or easy on crime,” state Sen. Cowsert said. “We have to keep public safety as our top priority.  We want to lower the crime rate in the process and we want to do this in a fiscally responsible manner.”

(Mike Klein will moderate a criminal justice reform conversation on Saturday, February 25 at the Georgia Bar Media and Judiciary Conference in Atlanta.  Panelists include state Supreme Court Chief Justice Carol Hunstein, state Rep. Wendell Willard and Douglas County District Attorney David McDade.)

February 20, 2012 Posted by | Uncategorized | , , , , , , | Leave a comment

Georgia Low-Income Students Make Progress But Still Doing “Very Poorly”

Georgia takes a lot of hits over the quality of its public education.  A new study by the American Legislative Exchange Council describes some progress we are making, especially measured against other southern states.  But comparing new data to previous reports also suggests we may be treading water in a state that will spend $7.4 billion this year on K-12 public education.

ALEC’s “Report Card on American Education” analyzed fourth and eighth grade math and reading proficiency results for low-income students from 50 states and the District of Columbia.  Rankings were based on 2003 and 2009 test comparisons.  This year ALEC released a math and reading numerical education performance rank plus a new education reform letter grade.

The best overall effort was by Florida where Sunshine State kids finished third nationally for math and reading proficiency and the state received “B+” for education reform.  Just a few years ago Florida public school education was ranked near the bottom of the nation.  Florida improvement is largely attributed to several initiatives begun under former Governor Jeb Bush.

The Legislative Exchange Council ranked Georgia 27th nationally for a six-year trend in fourth and eighth grade math and reading proficiency and the state earned “C” for education reform.   Both rankings position Georgia in the middle of the national education pack.  “Georgia has a long way to go, but overall, it seems to be headed in the right direction,” said David Myslinski, director of the ALEC Education Task Force.

The study analyzes and reports two important bodies of data.  One is 2009 National Association of Educational Progress (NAEP) actual test scores.  The other is the trend line for those scores since 2003 when federal No Child Left Behind legislation mandated that all states administer the test. Just 30 states used the test prior to NCLB.

In NAEP tests last year Georgia low-income public school students finished 37th nationally in fourth grade reading, 43rd in fourth grade math, 41st in eighth grade reading and 44th in eighth grade math.  “Just looking at how Georgia students are doing now, very poorly,” said Myslinski, “but the good news is they are improving and improving faster than the majority of states.”

The six-year trend underscores that optimism.  Georgia finished 6th nationally in eighth grade math, 12th in eighth grade reading and 14th in fourth grade reading, but just 30th in fourth grade math.   Improvement trends are often considered more important than any single year result because they demonstrate whether progress is being sustained.

However, this is also where the nice story slows down.  When you dig into previous annual reports the comparison shows Georgia fourth and eighth grade scores did not improve over two and four years ago.  Fourth and eighth grade reading and math scores are all slightly down 2009 compared to 2007 and also down 2009 compared to 2005.

The ALEC education report card makes clear Georgia must challenge itself.  Georgia earned “F” for state academic standards when its 2009 school – year proficiency standards were compared to the 2007 NAEP comparable exams.  Oklahoma and Tennessee also scored “F.”

Writing in the main report, but not specifically about Georgia or the other two states, the Legislative Exchange Council said a proficiency standard lower grade “might indicate the state has been ‘gaming the system’ by lowering their state proficiency standards to reach AYP (Adequate Yearly Progress) goals” mandated by NCLB.

The overall “C” letter grade that Georgia earned for education reform also considered policies on private school choice, charter school law, open enrollment, online virtual learning, home schooling regulation levels and teacher alternative certification.

Myslinski said, “It looks like he biggest downfall for the reform (grade) is the policy toward retaining effective teachers.”  Georgia was graded “D+” for identifying high quality teachers, “D” for retaining effective teachers and “C+” for removing ineffective teachers.

ALEC noted Georgia is among just six states that offer multiple publicly funded private school programs and among just seven that offer tax credit programs to fund scholarships.

This is the Council’s 16th American education report.  Previous studies included data for ACT and SAT tests taken by high school students, racial demographics, high school graduation rates and charter schools data but those categories were omitted in 2010. The entire concentration is on fourth and eighth grade low-income students.

Florida, Texas, and Virginia earned the highest math and reading proficiency rankings for fourth and eighth grade low-income students who attend public school in southern states.  Every other southern state finished behind Georgia with South Carolina last nationally.  The District of Columbia finished one spot ahead of Georgia.

Click here to read the complete report.

Mike Klein writes about education as Editor at the Georgia Public Policy Foundation.

October 7, 2010 Posted by | Uncategorized | , , , | Leave a comment