Another View: Coordinated Action on Tax System Vital

(This article was published in the Sunday April 15 Atlanta Journal-Constitution)

By Mike Klein

Mike Klein, Editor, Georgia Public Policy Forum

This year, Georgia legislators took down some barriers in tax, pension and criminal justice reform but they whiffed on creating a state-assisted venture capital investments model. Next January, they need to take another step forward in tax reform, monitor the start of criminal justice reforms, enact juvenile code reforms and create a real strategy around venture capital investments.

Tax reform this year included sales tax changes to benefit industry, the beginning of the end for the hated annual tax paid on personal vehicles, sales tax added to some online purchases and a gimmicky sales tax holiday. That is not enough. Comprehensive tax reform must include a decision — or at least a full blown discussion — about whether to revise the state’s 6 percent maximum income tax rate, which is widely considered to be non-competitive against states like Florida and Tennessee with no state income tax. Proponents of, say, a 3 percent to 4 percent maximum rate argue it will benefit Georgia’s emerging high-tech and bioscience industries.

One way to offset the change in income tax revenue would be to revise the state sales tax. That would require lots of buy-in over the next year. Income taxes fund about half the state budget. Local governments will be concerned about the impact of changes.

Two bills attempted to stimulate Georgia’s nascent venture capital investments industry. Both were controversial, highly political and neither passed the Legislature. Georgia continues to incubate businesses that move to other states when they need more venture capital. The Legislature must deal with this issue before more businesses and jobs lost.

Pension reform is another barrier that began to come down this year. The state Employees Retirement System is now authorized to invest up to 5 percent (about $750 million) of its available total assets (about $14.9 billion) in venture capital pools and other private placements specifically named in legislation. Georgia public sector pensions are well-funded in comparison to many states. However, public sector pensions nationally are under pressure as boomers begin to retire and state revenue is slow to recover from the recession. Eventually, the teachers’ retirement system should be included. Currently it is not, which is their choice.

Everyone agreed it is time to move forward with criminal justice reforms that will emphasize treatment over incarceration for some low-level property offenders and drug users. This is recognition that current strategies created swollen prison populations and caused havoc with budgets. Adult system reforms will take years to implement and it will be impossible to evaluate their success soon.

Georgia’s juvenile code, unchanged for decades, came up short this year. Gov. Nathan Deal’s office put on the brakes until there is a better understanding of the financial impact. There is universal support for changing this code that regulates foster care, permanent placement hearings, adoption codes, family mitigation hearings, status offenders and parental rights. This bill should become law next year if the financial analysis makes sense.

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