Atlanta Business Chronicle Highlights Work on Tax Reform

An article in The Atlanta Business Chronicle edition of November 22-28, 2013, cites the Foundation’s work on tax reform in 2013.

Headlined, “Discussion beginning on Georgia tax changes,” the article quotes Kelly McCutchen, Foundation president, and Christine Ries, Foundation Senior Fellow.

Leslie Johnson, Contributing Writer

Progress on tax reform legislation in Georgia may not be around the corner, but that hasn’t stopped discussion on the subject and pushes to move forward.

One of the issues at the heart of the debate is the state’s income tax.

Proponents of lowering or eliminating it say doing so would make a huge difference to Georgia’s economy.

Kelly McCutcheon, president and CEO of the Georgia Public Policy Foundation, explained to a Georgia Tax Reform Senate committee this summer that most small businesses throughout Georgia don’t pay corporate income tax; their taxes are based on individual income rates. So an individual income tax rate would be beneficial to those small businesses, he said.

“The Fair Taxation Act of 2014,” which would get rid of Georgia’s income tax, was introduced by state Rep. Tom Kirby on the last day of the legislative session.

During a Senate committee testimony on tax reform this summer, Virginia Galloway of Americans for Prosperity Georgia, said: “A good bill would broaden and flatten out the tax base, not increase taxes overall and significantly reduce income tax, and I mean significantly.”

Those in the loop say sweeping tax reform isn’t an easy feat and isn’t likely to get far in the upcoming legislative session, though they’re holding out hope for movement in 2015.

“We’re creating good jobs but not rapid enough to employ our increasing population,” said Christine Ries, professor of economics at Georgia Tech. Reducing the income tax from 6 percent to3 percent would help strengthen the state.

“We have so many things going for us,” Ries said.

Others agree. McCutcheon, who also addressed the Senate’s tax reform committee, mentioned pluses such as the phasing out of the sales tax on energy used in manufacturing and Georgia’s myriad assets, from its research universities to the aerospace and technology industries, among others.

“We believe that bold tax reform will give us that competitive advantage to grow all of these businesses,” McCutcheon told the committee. “We have to be able to attract and keep talent. These businesses are based upon getting these talented people to come stay in Georgia. High-wage jobs are going to follow those.”

Georgia is also a right-to-work state and has drawn big companies such as Briggs & Stratton Corp. and NCR Corp. to set up operations. So while Georgia isn’t in abysmal shape, tax reform supporters say there is room for improvement.

At the Senate committee discussion, McCutcheon also presented information on the per capital revenues generated in neighboring states.

Although Georgia was below average in sales tax and corporate income tax, it was above average with its income tax, he said.

McCutcheon cited a Federal Reserve Bank of Atlanta study that stated: “If long term growth rates seem too low relative to other states, lowering the tax rate is likely to have a positive effect on longtime growth.”

“We agree with that,” he said.

On the website, the Special Council for Tax Reform and Fairness for Georgians outlined its recommendations for broadening the tax base and for lowering rates “in a way that stimulated the most economic growth and job creation.”

“Personal income tax is the most powerful category because 75 percent of the new jobs created are created in small or pass-through business that pay taxes as personal income tax returns,” it said.

Mark Rider, associate professor of economics at Georgia State University, said similar tax reform talk is being considered in 11 other states as well. “I think the main thing is changing the tax structure away from income tax to consumption tax and sort of the intellectual rationale for doing that. The idea is to broaden the base, then lower the income tax rate.”

There’s reason for a growing sense of urgency in the debate. North Carolina took a huge leap in tax reform this summer when its governor, Pat McCrory, signed legislation to reduce the state’s personal income tax, increase taxpayers’ standard deduction and bring down the corporate income tax, among other changes.

“North Carolina is a friendly competitor and Georgia and Atlanta have benefited greatly from Southerners flocking to Atlanta to do business,” said state Sen. Judson Hill, chairman of the Senate Finance Committee, who represents east Cobb County and Sandy Springs. “North Carolina has some good assets. We want to make sure Georgia will always be the first choice for business and people as they choose to relocate and find  a more favorable environment for work and families and schools. We know people make decisions where to locate based on a number of issues, including the tax burden.”