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The Final Breath From This Year’s Georgia General Assembly

Mike Klein

The final breath has been drawn by this year’s Georgia General Assembly.  Here is what lawmakers did on seven issues that are closely tracked by the Georgia Public Policy Foundation.  This article discusses state charter schools, digital learning, criminal and juvenile justice reform, pension and tax reform, and health care.  All of these will require more work going forward and in some cases, much more work starting soon.

State Charter Schools

This November voters will decide who got it right:  Lawmakers four years ago when they created a state charter schools commission or the state Supreme Court last spring when it ruled that the commission was unconstitutional.  The very fact that voters – not the state Supreme Court and not legislators – will settle this question was by no means assured during the session.

House Resolution 1162 faced a significant hurdle to achieve a two-thirds House super majority and it almost collapsed in the Senate.  Opposition came from some of the state’s largest school systems and organizations that represent school boards, superintendents and teachers.  Those groups were focused on how to stop voters from having a chance to decide the question.

They might have prevailed until the Senate’s two longest serving members – Democrats George Hooks and Steve Thompson – delivered powerful chamber speeches to explain why they would vote yes.  Hooks, Thompson and two other Democrats joined all 36 Republicans to vote for the constitutional amendment resolution.  Another “yes” vote in November would start development of a new commission whose bones are contained in House Bill 797.

The commission could approve virtual or brick-and-mortar schools.  Students could live within defined local boundaries for traditional schools or statewide for virtual schools.  The commission would consider applications only from groups that were already rejected by local school boards.  Those same local boards would be permitted to explain why they rejected the application.

New and existing state commission charter schools would receive only state dollars.  Traditional schools would be paid operating expenses figured on the state’s school funding formula for the lowest five school systems based on assessed valuation, plus a or capital expenditures amount.  Virtual schools would receive two-thirds of the amount given to traditional schools for operating expenses.  Schools that offer blended learning – online with a teacher – could receive some capital funding at the discretion of the commission.

“No” from voters in November would render House Bill 797 unnecessary.

Resources: House Resolution 1162House Bill 797

Digital Learning

State-based digital learning is about to explode in Georgia.  Two bills are responsible.

House Bill 175 actually was introduced and passed the House last year.  This year it passed the Senate.  The bill establishes a clearinghouse of online learning courses that would be managed by Georgia Virtual School (GAVS) at the Department of Education.  Courses could originate with public school systems – such as Cobb, Forsyth and Gwinnett school systems that have robust online curriculum – or from other sources that could include online learning companies.

This clearinghouse method has the potential to create vast amounts of content that could be available to any student who has online access anywhere in the state.  GAVS serves about 10,000 students with courses that supplement their traditional bricks-and-mortar classroom work.  The expectation is that GAVS could serve 100,000 students within just a few years.

Senate Bill 289 takes digital learning another step forward; it directs the state board of education to ramp high school digital learning resources for today’s current sixth graders before they are freshmen in fall 2014.  The original Senate bill said those students who are scheduled to graduate in spring 2018 would be required to take at least one online learning course before high school graduation but that language was changed to “maximize the number.”

The clearinghouse would also be managed through the Georgia Virtual School.

Resources:  Senate Bill 289House Bill 175.

Criminal Justice Reform

When the final ink was dry, everyone agreed it is time to move forward with widespread reform.  The House voted 162-0 and the Senate 51-0 on final legislation that will emphasize treatment programs over hard-time incarceration for some property crime offenders and low-level drug users.  From the beginning supporters said these are not going-soft-on-crime strategies.

New ideas adopted this year recognize the state cannot continue to absorb more than the $1.5 billion per year that it spends on prisons, parole and probation.  State prisons hold 56,000 inmates and each day local jails contain hundreds to thousands of inmates who are waiting for an empty state bed.  Georgia also has 22,000 adult parolees and 156,000 on felony probation.

New ideas will take years to fully incorporate.  They include new and expanded accountability courts, especially drug and mental health courts that will reroute eligible offenders into treatment programs with severe oversight.  New definitions and penalty levels were established for several property crimes including theft, burglary, shoplifting and forgery.

The state will move toward prosecution of drug offenses based on the type and weight of drugs to clarify the distinction between casual users, sellers and traffickers.  Child abuse laws were tightened as were requirements for reporting suspected sexual abuse and suspicion of human trafficking.

Criminal justice reform is not a single year issue.  It will take money and time to develop public and private resources.  Sheriffs and the county district attorneys are concerned about the impact of reform on their budgets, facilities and staffs. Everyone already knows this will take a steep learning curve and come corrections are likely.  Governor Nathan Deal kept the Special Council on Criminal Justice Reform intact and it is expected to have new assignments this year.

Resources:  House Bill 1176.  Policy Foundation Issue Analysis.

Juvenile Justice Reform

The outlook was bright when the House voted 172 – 0 to pass ambitious legislation that would rewrite nearly every section of the state’s juvenile code.  But the outlook proved to be too bright when the Governor’s Office said it wanted more financial analysis and the current bill died.

Much like adult criminal justice reforms, the bill emphasized treatment over incarceration when appropriate for juveniles.  It also made changes to policies that regulate foster care, permanent placement hearings, adoption codes, family mitigation hearings, children who are status offenders and the rights of parents.  None of the changes would be enacted until July 1, 2013.

Advocates – and there are many inside and outside government — believed they could work out funding details before July 2013 and during the next General Assembly.  That strategy came up short at the Governor’s Office and the bill never reached the Senate.  It has been at least five years since hard work was begun to rewrite the code and it will be at least one more.

Resources:  House Bill 641.  Policy Foundation Issue Analysis.

Pension Investment Reform

Pension investment management is an ongoing hedge that contributions and investment returns will continue to generate the cash flow required to pay benefits.  Public sector pensions nationally have started to come under pressure as baby boomers began to claim retirements while equity investments were losing billions of dollars and other state revenues were shrinking. Georgia has taken a small step forward to help stabilize its pension system investment returns.

Senate Bill 402 would permit the Employees Retirement System to allocate up to but not more than 5 percent of its available assets into alternative investments that include venture capital pools and other private placements specifically named in the legislation.  ERS had $14.9 billion invested on June 30 of last year, about two-thirds in equities and the remainder primarily in U.S. Treasury notes or bonds.  Currently, the 5 percent threshold would be about $750 million.  The Teachers Retirement System is exempt and it is not allowed to make similar investments.

Many independent analyses have concluded Georgia public sector pensions are better funded at a higher percentage than most other states but Georgia does have a liability position and it needs to close the gap between funds available and owed over time.  Georgia is not breaking new ground; it is adopting an investment strategy already authorized in every other state.

Additional resources:  Senate Bill 402.  ERS 2011 Audit.

Tax Reform

The results here were mixed and tax reform requires more work.

Pro-business and economic development changes adopted this year include the elimination of sales tax charged on energy used in manufacturing, agricultural tax relief, reduction of the sales tax paid on jet fuel purchases (to help all commercial airlines) and some other modernization of the tax code.   Pro-family changes that will prove to be politically popular include reduction of the marriage penalty on state income taxes and a guarantee that the first $65,000 of income earned by retirees (plus Social Security) will be continue to be exempt from state income taxes.

The motor vehicle revenue structure will change. The state will charge a title fee rather than state and local sales tax on new car purchases after March 1, 2013; essentially, that is a wash.  But the state will no longer impose the much hated annual ad valorem value tax on vehicles purchased starting in March next year.   The state will continue to impose ad valorem tax on millions of existing vehicles so in practicality, it will take years to fully convert this system.

For the second straight year the Legislature took no action to reduce state personal income tax rates that peak at 6 percent, which are among the highest rates in the southeast.  Tax reform also did not address possible state sales tax rate or corporate income tax rate questions.  House Speaker David Ralston has said personal income tax rate reform should be a priority.

Additional Resources:  House Bill 386.

Health Care Reform

Not much happened in the General Assembly because Georgia is waiting for an early summer U.S. Supreme Court decision in the Patient Protection and Affordable Care Act case.

Georgia is among 26 plaintiff states that are asking the Supreme Court to throw out the law.   Nine justices have the option to keep the law as is, throw it out entirely or select bits and pieces to uphold or reject, including the contentious individual mandate.  Health care dominoes will begin to fall into a more predictable pattern after the opinion which is expected in late June.

This issue affects every Georgian, whether you work for or own a business, purchase your own health insurance, use public sector programs or have decided you do not want insurance.  You could be forced to obtain insurance whether you want it or not, and larger numbers of your tax dollars could be required to support public sector insurance programs.

For example, existing health care law would expand the number of Medicaid eligible Georgians by 650,000 to 750,000 within two years.  The anticipated cost to the state in new dollars would be $2.5 billion over ten years, paid for somehow by someone, most likely taxpayers.  If upheld, the law would also force Georgia to create a health insurance exchange that it currently does not have, or to accept one that is created and overseen by the federal government.

Several pieces of Georgia legislation were introduced this year that could become the basis for a state-based health care solution if the federal law or portions of it are ruled unconstitutional.  None of this year’s Georgia bills passed the General Assembly but they could be resurrected as a package or individually next year.  How all this plays out depends on how the Supreme Court feels about the greatest expansion of the federal government into health care since Medicare.

Additional Resources: GPPF analysis of U.S. health care spending.  GPPF commentary on state health exchanges.

Save the Date: Monday January 14, 2013 for the next Georgia General Assembly!

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

March 29, 2012 Posted by | Uncategorized | , , , , , , , , , | Leave a comment

Huge Approval Votes for Tax and Criminal Justice Reform Bills

Mike Klein

Georgia General Assembly sessions usually move at NASCAR speed into the final few days but some of the highest profile pieces are finished before next week’s final three days.

Thursday afternoon the Senate unanimously approved tax reform and the House passed criminal justice reform.  The tax bill is ready for Governor Nathan Deal’s signature.  The Senate must still debate and vote on criminal justice and that is expected on Monday.

The Senate approved tax reform 54-0.  The House approved criminal justice reform 164-1 but the single no vote was later changed to yes.   Tax reform is one of two big dominoes that fell this week.  Monday afternoon the Senate passed the controversial charter schools constitutional amendment resolution with a more than 40-vote two-thirds majority supplied by all 36 Republicans joined by four Democrats.

Thursday afternoon’s tax and criminal justice floor debate in both legislative chambers could best be described as courteous and gentle.  There was nothing rancorous heard  in either chamber.  A few soft blows were landed but there never was any doubt that both bills were headed toward huge approval votes.

Supporters describe tax reform legislation as pro-business and pro-family.  It creates a sales tax exemption on energy used in manufacturing.  Other tax changes would replace vehicle sales and the annual ad valorem taxes with a one-time only title fee; provide some tax relief to agriculture, reduce sales tax paid on jet fuel sales by one-fourth; and, modernize the tax code for small businesses.

Tax schedules would change to ensure that married couples are not penalized by filing a joint return instead of filing individually.  Retirees will continue to be allowed to exempt their first $65,000 in earnings from state income tax; the exemption level was scheduled to increase but now it will be frozen.  School supplies sales tax holidays were reinstated for this year and next year.  And, the state would begin to require the collection of sales tax on most internet sales.

Click here to read tax reform analysis published today by the Georgia Public Policy Foundation President Kelly McCutchen.

Criminal justice reform is intended to save the state some $264 million over the next four years by emphasizing alternative treatment programs to incarceration for non-violent offenders.  Reforms emphasize alternatives to incarceration for non-violent offenders who are not considered a threat to public safety.  Simple possession drug users could be eligible for treatment programs but the legislation makes a distinction between users and drug traffickers.  Drug and mental health courts are big components of the new model, relying public and private community programs to provide treatment.

Click here and here to learn more about Georgia criminal justice reforms.

The General Assembly is not in session on Friday and no committee meetings are scheduled.  Floor sessions will be held Monday and Tuesday.  There will be no floor session Wednesday.  The 40th and final day is scheduled next Thursday.

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

March 22, 2012 Posted by | Uncategorized | , , , , | Leave a comment

House Sends Tax Reform Bill to Senate on 155 – 9 Victory Lap

Mike Klein

The Georgia House overwhelmingly approved tax reform legislation Tuesday afternoon, sending the bill to the Senate on the wings of a powerful 155 – 9 bipartisan victory lap.  Speaker David Ralston closed debate with a rare appearance in the well, telling members to, “Vote Green!”

Ralston personally thanked A.D. Frazier, chairman of the 2010 Special Council on Tax Reform that traveled the state and took testimony from hundreds of Georgians before it submitted a far-reaching … and some would say, politically challenging … set of recommendations.

“Some of you who followed that Council know that even though he was one of my appointees, I really couldn’t do much with him!” Ralston told House members.  “He led what I believe is an effort that will continue to pay dividends in this state for many, many decades to come.”

House floor debate – scheduled to last three hours – was considerably shorter and entirely positive when it began in mid-afternoon.  Rep. Mickey Channell, chair of the special legislative committee on tax reform, began the debate by acknowledging “the completion of a fairly long journey” but he soon added, “HB 386 is not a comprehensive tax reform package.”

House Speaker David Ralston

Using phrases like “one more tool in that tool box” to attract new businesses, Channell and other speakers returned often to the impact on jobs.  He said eliminating sales taxes paid on energy used in manufacturing was a reason Caterpillar will locate a plant that employs 1,400 near Athens.   Channell said a sales tax exemption for projects of regional significance is an “important deal closer for our state” and “another matter that will help create jobs for the state.”

One by one other speakers including Minority Leader Stacey Abrams went to the well to support House Bill 386, which was immediately transmitted to the Senate.  The legislation combines new revenues and tax changes that Channell described as pro-business and pro-family.

On the taxes side, the annual ad valorem tax paid on vehicles would be gone, and sales tax paid on vehicle purchases would also be gone, both replaced by a one-time only title fee paid at the time of purchase, whether through a dealer or in so-called casual sales between individuals.

The marriage penalty that results in married couples paying more than single individuals would be gone under the legislation.  Tax-free retirement income would be capped at $65,000; it had been scheduled to increase annually but that will not happen.  Channell said even at the current cap, Georgia loses some $700 million per year in tax revenue.

A. D. Frazier, Chairman, Special Council on Tax Reform

Other tax changes include reinstating the sales tax holiday for school supplies for two years starting this fall,  elimination of a film production sales tax exemption because it did not work, new sales tax exemptions for agriculture, and a reduction in state sales tax charged on jet fuel sales.

The legislation also requires that all online retailers with Georgia customers must collect and remit sales tax.  The tax will not generate a great deal of revenue but supporters say it will create a more stable playing field for the state’s brick and mortar retailers.

Soon after the House voted, Georgia Chamber of Commerce President and CEO Chris Clark said the legislation would “attract new investment, encourage job creation, provide support to existing businesses and approve our overall competitiveness.”

Click here for coverage of Tuesday morning’s special committee on tax reform hearing.

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

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

Tax Reform Bill Passes Out of Committee; Heads to House Floor Debate

Mike Klein

Georgia online shoppers could begin to notice changes in their internet purchase sales taxes three months sooner than originally announced.  The new effective date would be October 1 – just in time for holiday shopping – rather than on New Year’s Day which was the original date.

The announcement was made Tuesday morning during the second and possible final meeting of the House – Senate revenue committee that oversees tax reform.  House Bill 386 passed out of committee on a voice vote after a 13-minute hearing and no witnesses.   The bill moves to the House for debate and a possible vote today.  The track is fast; the bill was introduced Monday.

A 1992 U.S. Supreme Court ruling exempts retailers from having to collect and pay sales taxes in states where they have no physical presence – known as nexus. States have looked for an internet sales tax option since the ruling and especially since the Recession dwindled revenues.

New York in 2008 was the first state to expand the definition of “nexus” to include affiliates doing business on behalf of an internet retailer.  Rhode Island followed suit in 2009.  Sales taxes paid by out-of-state online retailers are often referred to as Amazon taxes because of Amazon.Com, the behemoth online shopping site.

Amazon and North Carolina went to war after the state imposed passed a 2009 law similar to those in New York and Rhode Island.  The online publication TechJournal reported North Carolina claimed Amazon or its customers owed $50 million in unpaid sales taxes dating back to 2003.  Amazon discharged all of its affiliates, which harmed those businesses.  TechJournal said there also has been a negative impact on start-up businesses.

Rather than fight with each other, last year Virginia reached an agreement with Amazon.  The company agreed to collect sales taxes just like any physical retailer.  The company also said it would open two fulfillment centers in Virginia, investing $135 million and creating 1,350 jobs.

The Tax Foundation position is that the so-called Amazon tax is unconstitutional.  It described the New York Law as “an unprecedented expansion of state taxing authority.”  It said exposure to these kinds of taxes would make it less likely for businesses to expand into those states.

Georgians are already required by law to monitor the sales tax they would owe by making online purchases from out-of-state retailers.  And in theory, they are supposed to pay tax to the state. The fiscal note attached to HR 386 admitted, “In practice, these use taxes are seldom paid.”

Estimated e-sales tax revenue would be small by government budget standards — $52.2 million for the state and $36.4 million for local governments – spread over fiscal years 2013 — 2015.  During the same period the fiscal note estimated that the state would lose $81.1 million and local governments would lose $56.8 million because of sales tax holidays for school supplies.

During Tuesday morning’s hearing Sen. Steve Henson asked House Majority Leader Larry O’Neal “why it took us so long to get here … really, why the last five days or so we’ve got a major tax bill for us to try to evaluate and do the best for Georgians.”

“There’s not one silver bullet as to why,” O’Neal said.  “I will assure you it’s not intentional to be done in any way to be deceptive to anybody or to hurry it by anybody for any reason.  If it were, it would be all new propositions.”  He added, “It’s finally time now to not let perfect get in the way of real, real good.  That’s why we’re dealing with it now, in my opinion.”

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

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

Attention Online Shoppers: More Sales Taxes Possible in January

Mike Klein

Georgia online shoppers would be required to pay state sales tax formore purchases starting on New Year’s Day 2013 if tax reform legislation unveiled on Monday becomes law.

Georgia shoppers currently pay state sales tax only to online retailers that have a bricks-and-mortar presence in the state.  The proposed tax reform bill would expand the number or retailers who are required to collect state sales tax by eliminating the bricks-and-mortar distinction.

Expansion of online purchase state sales taxes and changes to taxes on personal motor vehicles are the two biggest consumer focused headlines from a reform package that makes very few big headlines.  Sen. Donald Balfour presented the bill during a hearing Monday and even he admitted, “I don’t think there’s anything brand new in here that you are literally seeing for the first time.”

The 2010 Special Council on Tax Reform predicted Georgia would lose up to $410 million this year because a 1992 U.S. Supreme Court ruling exempts retailers like Amazon.Com from collecting sales taxes in states where they have no physical presence.  States argue they have lost billions of dollars while local brick-and-mortar retailers say they compete at a disadvantage.

One issue is the definition of “nexus” which is the legal term for bricks-and-mortar physical presence.  The U.S. Supreme Court described “nexus” as a true physical presence, according to the Institute for Local Self-Reliance which tracks how states have reacted to the 20-year-old SCOTUS opinion.

New York was the first state to expand the definition of “nexus” with a 2008 law that specifically included internet-only retailers.  The Institute for Local Self-Reliance said the four-year-old law stipulated “that web retailers have nexus in New York and must collect sales taxes if they have sales affiliates in the state that generate a combined $10,000 a year or more in revenue for the retailer.”

At least eleven states passed similar laws.  Arkansas and North Carolina require online retailers to collect and remit state sales taxes if they generate $10,000 or more in annual sales.  Rhode Island has a $5,000 threshold.  California established a $500,000 threshold but it taxes online retailers located in the state, including Amazon.Com.  The Georgia bill would establish a $50,000 threshold.

The National Governors Association and National Conference of State Legislatures began to address this issue with their 1999 Streamlined Sales and Use Tax Agreement project.  Forty-four states including Georgia and local governments are cooperating to identify how states can collect sales taxes from internet-only retailers.  Last August the Main Street Fairness Act was introduced in the U.S. Senate as another step to help states to overcome the 1992 Supreme Court ruling.

Georgia’s 2012 tax reform package was publicly unveiled during a half-hour special committee hearing that was notable for its lack of drama.  Most proposals are neither dramatic nor controversial:  they include a reduction in the marriage tax penalty, a $65,000 tax free cap on retirement income, elimination of a film industry sales exemption, an expected four-year phase out of sales taxes charged on energy used in manufacturing and the reinstatement of sales tax holidays for school supplies.

The state would also eliminate sales tax paid on new or used motor vehicle purchases from dealers along with the annual ad valorem property tax.  Instead, the state would begin to charge a one-time title fee on all new and used vehicle purchases with revenue split between state and local governments.  The title fee would be charged on all sales made by dealers or in sales between individuals.  People who move to Georgia would be required to pay the title fee, except for members of military families.

Many of the biggest recommendations from the 2010 Special Council on Tax reform are still missing and will wait until at least next year.  There is no proposed change to the state sales tax – other than voters statewide will be asked in July to approve a 1 percent special local options sales tax to fund transportation projects.

The legislation unveiled Monday contains no change to Georgia’s 6 percent maximum personal and corporate income tax rates.  A groceries sales tax idea died quickly last year because of political realities.  There also will be no changes to taxes levied on internet services, taxes levied on cigarette or liquor sales, taxes levied on motor fuel sales, taxes levied on professional services or taxes levied on insurance policies.

House Speaker David Ralston has said personal income tax rate reform should be a priority but it will wait until next year.  Georgia’s 6 percent rate is not competitive with Florida and Tennessee  that levy no personal income tax.  The Legislature has six days remaining on its calendar and the session is expected to end next week.  Another two-hour hearing has been scheduled for 9:30 Tuesday morning

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

March 19, 2012 Posted by | Uncategorized | , , , | Leave a comment

No Personal Income Tax Relief for Georgians This Year

Mike Klein

Exhale now if you expected personal income, corporate income or sales tax rate changes to be enacted during the current General Assembly.  It won’t happen but as Chicago Cubs fans have believed for more than one hundred years, there’s always next year.

“There was a lot of discussion last session about those kinds of things,” House Speaker David Ralston said Thursday.  “You’re probably not going to hear much this year.”  Ralston answered a Public Policy Foundation tax rates question during a Commerce Club membership breakfast.

The Special Council on Tax Reform report published in December 2010 proposed a one-third reduction in the maximum personal income tax rate from 6 percent to 4 percent effective in January 2014.  The General Assembly did not enact tax reform legislation last year, the Speaker acknowledging, “We weren’t able to quite get it into the end zone.”

Philosophically, the Speaker is on board with lower personal income tax rates.  “I would like to see us work really hard on pushing the individual rates down here in Georgia because I think that is not only good for families and workers, I think it’s good for small businesses that are paying at that rate,” Ralston said.

However, he added, “I don’t expect that now but I think in the not too distant future those are going to be back on the table in a very serious way.”  The elimination of sales taxes on energy used in manufacturing is expected to become this year’s major tax reform headline.  It was named by Governor Nathan Deal as one of his 2012 economic competitiveness tax priorities.

Ralston touched on several other topics during his Commerce Club speech in Atlanta.

Georgia House Speaker David Ralston

Back on tax policy, Ralston cited Caterpillar’s announcement that it will build a farm equipment manufacturing plant in Clarke and Oconee counties.  “They are the largest private employer in the state of Illinois,” Ralston said.  “They have publicly threatened to move out of Illinois because of that state’s tax policy.”  Caterpillar will employ about 1,400 people east of Atlanta.

Some folks who are worried about failure have suggested this year’s transportation sales tax referendum should be delayed.  “There’s a lot of clatter down there and a little bit of a push to sort of change it, take it off the table, start over again,” Ralston said.  “It’s time we just move forward and let Georgians make that decision.  That’s what’s going to happen the end of July.”

Balancing the budget this session will require “more nipping and ticking” but Ralston said, “I don’t think the cuts will be the sort of draconian nature they have been the last few years.  We are probably not in the kind of recovery that we want to be in (but) we think we may have hit the bottom and we are not going down any further.”  Governor Deal’s office has said state agencies will continue to be asked for budget cuts, even after state revenue improves.

The Speaker said juvenile justice reform legislation that the House unanimously passed on Wednesday will “bring our juvenile law here in Georgia up to the 21st century.”  Ralston recognized Supreme Court Chief Justice Carol Hunstein who was in the audience, and noted the challenge inherent in the ongoing adult criminal justice reform initiative.  “We have a rate of incarceration here in Georgia that frankly we should not be proud of,” Ralston said.

General Assembly sessions during recent years have lasted well into April. Ralston suggested this one might end sooner than April. “People remind me from time to time that former Speaker (Tom) Murphy used to like to finish the session by St. Patrick’s Day or when the Braves were still in spring training,” Ralston said. “That was when the state was about half the size it is now and there was a lot less going on than we have now.”

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

March 1, 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

Georgia Tax Reform Collapses as GOP Leadership Withdraws the Bill

Mike Klein

The perceived crown jewel of this year’s General Assembly session collapsed late Monday afternoon when Republican leaders concluded they did not have enough confidence in their financial numbers so they decided they would not bring the bill to a House floor vote.

Speaking late Monday at the state capitol, Georgia House Speaker David Ralston told reporters, “We’re going to call a time out. Tax reform is not dead. Tax reform is delayed.” Ralston has described tax reform as being one of his two biggest priorities this session.

A source who is familiar with Monday’s developments said Republicans might ask Governor Nathan Deal to include tax reform on the agenda when lawmakers return to Atlanta this summer to handle voting district reapportionment. Another option would be to delay all further tax reform consideration until the 2012 General Assembly that starts in January.

House Democratic Minority Leader Stacey Abrams agreed with Ralston’s decision to delay tax reform.  Abrams has consistently questioned the accuracy of numbers being used by the majority party and she has stated tax reform could raise taxes on middle-class Georgians.

A different outcome seemed still possible Monday morning when the special joint committee on revenue structure passed tax reform legislation on a voice vote.  The bill passed after an eight-minute hearing, majority Republicans voting yes and the panel’s few Democrats voting no.

Observers expected that the bill would move quickly to the House floor so that it could pass and reach the Senate before the day ended. Several hours passed without any House action. Then word came that the bill would not move forward.  The 2011 General Assembly ends Thursday.

Tax reform began as a bold initiative one year ago when the Georgia General Assembly created a special council of private sector business leaders and university economists.  Their 50-plus page report was delivered to legislators in January.   It came loaded with ideas but many were almost immediately considered to be politically impossible.

The special council’s work generated few fans.  It proposed reducing personal and corporate income taxes from 6% to 4%.  But it also proposed reinstating the state sales tax on groceries, a new state sales tax on many personal services, and higher taxes on motor fuel and cigarettes.

Two months of difficult discussion and number crunching resulted in a bill that would reduce the state’s 6% maximum personal income tax rate to 4.6% in January 2012 and then 4.55% starting in January 2013.  The bill as it existed Monday would have contained higher itemized deduction limits than originally considered largely in an effort by Republicans to blunt Democratic criticism.

The version approved in committee Monday also included new state sales taxes on automobile repair services and motor vehicles sold between private parties, plus a 7% communications services tax that would replace multiple current taxes.  Two new exemptions were created; state sales tax would no longer be charged on energy used in manufacturing and agriculture.

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

April 11, 2011 Posted by | Uncategorized | , , | Leave a comment