By Benita M. Dodd
With the April 15 tax filing deadline imminent, the Tax Foundation sent out its perennial reminder of Tax Freedom Day, the day Americans have collectively paid off their federal, state and local taxes and can begin to work for themselves.
Unfortunately for Georgians, Tax Freedom Day comes three days later than it was last year: April 12. Georgia is also well behind the first in line and lags all its neighbors but North Carolina: In Louisiana, it’s March 30.
It’s no surprise that taxes scarcely raised their Hydra head in the 2013-2014 Georgia legislative session that ended March 20. As with so many other potential controversies, legislators kept tax policy below the radar as they raced to the campaign trail in this election year.
That was easy to do. When polled, most Georgians are insulated and don’t see much to complain about on taxes. After all, there’s no state tax on groceries. (You do know your local government still imposes sales tax on groceries?) Thanks to 2014 legislation, the state income tax could be capped at 6 percent – as if legislators who won’t hike the state fuel tax would be willing to hike the income tax. The corporate income tax is also at 6 percent and, as most people know, corporations don’t pay taxes; people pay taxes.
But that bubble is about to burst. Georgia’s tax policy inaction is rearing up to bite Georgians and the state economy. It’s time to give serious consideration to Georgia tax rates vs. neighboring states. It’s time to remind Georgians to consider whether it’s wise to tax individuals’ income. And, while local government may be considered the best government, it’s way past time to remind Georgians of the tax burden they bear at the hands of local government.
First, consider what is happening to Georgia’s 6 percent tax rate versus other states. Why is this important? For business owners, states like Florida and Texas (no tax) are just an airport away. Tennessee (6 percent on dividends and interest income) and North Carolina (5.8 percent income tax and dropping) are a short drive away. It’s easy for the wealthy and retirees to relocate their homes and wealth beyond Georgia’s tax reach. Further, Georgia’s rate reduces its regional competitiveness and leads the state to offer more tax incentives to lure new business.
Second, taxing individuals’ income drives businesspeople out of the state and stifles job creation at home. Many small business owners file their taxes as individuals. Allowing them to keep more of their earnings provides more capital to invest in their businesses and expand, creating more jobs here.
More important, taxing what individuals earn is a huge disincentive to productivity, business expansion and job creation. Taxing individuals’ income unfairly penalizes people who save more, work more and, yes, earn more. It’s smarter to focus on a consumption tax – a sales and service tax – that taxes people based on what they buy and use, on what they consume.
Policy-makers must take into account the valid argument that consumption taxes are regressive. They do take a bigger bite from poorer people, who spend proportionately more of their income while higher earners save more. The grocery tax often comes up, although low-income families pay no taxes on food stamp purchases. For other purchases, a tax credit or “prebate” can compensate for undue burden.
It’s also worth noting that Georgians seem blissfully unaware of the big bite that comes at the local level: In nearly 50 of Georgia’s 159 counties, sales tax rates equal the state rate of 4 percent; property taxes add to residents’ burdens. The best government is government closest to the people but, if unchecked, it also gets too close to the people’s pockets.
Tax reform and changes have been off the table during the economic doldrums. With the economy reinvigorating a leaner Georgia, the timing is perfect for comprehensive tax reform based on sound principles and trustworthy data. A tax base founded in consumption taxes enables local government to reduce residents’ property tax burden, too.
It’s time to broaden the base, eliminate the breaks and lower the tax burden. Moving forward, let’s not allow a fiscally conservative government to fatten up again: The less that government takes from Georgians’ wallets, the more opportunity they have to make and fund the personal choices that improve their quality of life.
The Foundation’s Criminal Justice Initiative pushed the problems to the forefront, proposed practical solutions, brought in leaders from other states to share examples, and created this nonpartisan opportunity. (At the signing of the 2012 Criminal Justice Reform bill.)