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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