published Sunday, May 5th, 2013

Some lawmakers say they may kill Georgia's income tax next year, but there would be a cost

Pictured is the Georgia state Capitol. Staff file photo.
Pictured is the Georgia state Capitol. Staff file photo.

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Nine states with no income tax:

* Alaska

* Florida

* Nevada

New Hampshire

* South Dakota

* Texas

* Washington

* Wyoming


* While they don't tax wages, New Hampshire and Tennessee do tax individuals' dividend and interest income.



* Income tax: Hall income tax, a 6 percent tax on interest and dividends. Tennessee's income tax collections per person were $27 in 2010 which ranked seventh lowest nationally.

* Corporate tax: 6.5 percent flat corporate income tax. Tennessee's corporate tax collections per person were $142 in 2010 which ranked 11th highest nationally.

* Sales tax: 7 percent state sales tax. The average local sales tax rate is an additional 2.44 percent. Tennessee's state and local governments collect $1,268 per person in general sales taxes and $368 per person in excise taxes, for a combined figure of $1,636, which ranks 10th highest nationally.

* Property tax: Tennessee's state and local governments collected approximately $795 per person in property taxes, which ranks 9th lowest nationally.


* Income tax: Georgia's personal income tax system consists of six brackets and a top rate of 6 percent. Georgia's income tax collections per person were $726 in 2010 which ranked 22nd lowest nationally.

* Corporate tax: Georgia's corporate income tax system consists of a flat rate of 6 percent. Georgia's corporate tax collections per person were $71 in 2010 which ranked 16th lowest nationally.

* Sales tax: Georgia levies a 4 percent general sales or use tax on consumers. The average local sales tax rate is an additional 2.99 percent. Georgia's state and local governments collect $862 per person in general sales taxes and $274 per person in excise taxes, for a combined figure of $1,137, which ranks 11th lowest nationally.

* Property tax: Georgia's state and local governments collected approximately $1,096 per person in property taxes, which ranks 18th lowest nationally.

Source: Tax Foundation, Washington, D.C.

Should Georgia eliminate its income tax?

A group of Republican lawmakers in Atlanta wants to do away with Georgia's 6 percent income tax and replace it -- mainly by increasing taxes on sales and services.

State Rep. Tom Kirby, R-Loganville, set the stage for what could be a sweeping change to Georgia's tax system when he introduced the "Fair Taxation Act of 2014" on the final day of the legislative session.

"It's a bill to eliminate income tax in the state of Georgia," Kirby said. "I think we've got a good chance in 2014 to get this passed."

Kirby believes the switch to what he calls "tax on consumption" would simplify Georgia's tax system, spur the state's economy, create jobs, attract employers and put Georgia on a more competitive footing with Tennessee and Florida, two bordering states without income tax.

"What are you arguing for, if you don't like this?" he asked. "You're arguing for the mess that we've got."

Kirby's not alone in his thinking. Similar "fair tax" efforts that would replace income tax with sales tax are afoot in about a dozen states, including Kansas, Oklahoma, Nebraska, South Carolina and Louisiana. There's a national movement to abolish the federal income tax, too.

But the devil's in the details, said Matthew Gardner, executive director of the Institute on Taxation and Economic Policy, a Washington, D.C., group that describes itself as a nonpartisan, public interest research and advocacy organization.

Once voters learn how much sales taxes will soar, public enthusiasm fades fast, he said.

"You're starting off with a very vague statement of what these guys want to do," Gardner said. "I think that's intentional."

"Inevitably, when lawmakers are forced to say exactly what they're going to do on the sales tax side, the wheels fall off and public support vanishes," Gardner said.

In Georgia, experts say eliminating the state's income tax could result in a doubling of the current 4 percent sales tax.

Tax reform: The game

Georgia Institute of Technology economics professor Christine Ries would love to see Georgia's income tax disappear.

"The states with the lowest income tax rates grow the fastest, by far. The difference is astounding," said Ries, who served on the Special Council on Tax Reform and Fairness for Georgians that counted former Gov. Sonny Perdue among its members.

"If you want more of something [income], don't tax it," Ries said.

And she's happy to delve into details of state tax reform. In fact, Ries created "Tax Reform for Georgia: The Game" on her website that lets anyone fiddle with different tax scenarios to see how they impact the state's bottom line.

For example, the first checkbox under the game's "broaden [the] tax base" would reimpose Georgia's 4 percent sales tax on groceries.

Clicking it shaves 2 percent off the state's current reliance on income tax for 51 percent of its revenue. If groceries were taxed and nothing else changed, income tax would account for 49 percent of Georgia's revenue.

Some might see the idea of taxing groceries as an issue not to be touched. But Ries doesn't shy away from the notion. She said groceries' current tax-free status benefits the well-off, such as herself.

"I get to go tax-free on my Chateaubriand," Ries said, referring to an expensive cut of steak.

The poor would be better served by the jobs created by tax reform, Ries said.

"It's a sales tax on food -- and more jobs. Or no sales tax on food -- and less jobs. Those are the two real choices," she said.

Kirby supports the idea of a "prebate," or monthly check from the state to people under the poverty line to offset the cost of sales tax on basic necessities, such as food and clothing.

Devil in details

The Institute on Taxation and Economic Policy has exactly the opposite take on every aspect of taxation. Its publications and studies argue that income taxes promote economic growth and pave the way for better state economies. Sales tax on food and other items take a larger bite out of working families' budgets than from wealthier households, ITEP maintains.

Gardner has heard talk about prebates, but he doesn't think "fair tax" supporters factor in the cost and difficulty of administrative tasks such as checking people's income and doing outreach.

"It would be a real administrative challenge," he said.

But then, Gardner doesn't think that repealing a state's income tax would be an easy task.

Of the nine states that don't levy income tax, he said, "Alaska is the only one that ever did repeal it."

Alaska did so in 1980, he said -- after it started reaping huge revenues from its North Slope oil field. The state makes so much money on oil that it gives residents an annual dividend check just for living there.

Gardner said states that don't levy income tax typically have some other large source of revenue, such as gas and oil in Alaska or tourism in Nevada and Florida.

As for Tennessee, Gardner said, "Tennessee has managed to get along by really pumping up the sales tax and providing services [at a level] that most people would see as inadequate."

Gardner doesn't recommend Peach State legislators try to repeal the income tax, "until Georgia discovers vast underground deposits of oil that nobody knows about."

2014 the year?

Kirby and Ries think 2014 may be the year that Georgia does away with -- or at least cuts back -- its state income tax.

"I know a whole lot of people that want this to happen," Ries said. "I could probably give you 200 'mover and shaker' names."

"We're working with the governor's office very closely," she said.

Ries said that Georgia could cut its top income tax rate in half, to 3 percent, and still get 80 percent of the economic benefits that zero income tax would bring.

"Conceptually, I'd love to see it at zero," Ries said, adding, "I think if we hang on zero, we won't get it done."

She sees state sales tax rising by maybe 1 or 2 percentage points under that scenario. If Georgia simply did away with income tax and replaced it with sales tax, then sales tax would have to rise to about 9 percent, she said.

Ries said taxing broadly at a low rate is the most efficient way to levy taxes.

Because the Georgia Assembly is on a two-year cycle, Kirby said his bill's supporters still have a year to promote it and figure out details.

"We've got a lot of work to do," said Kirby. "We've got to get down to the details."

He said, "I think the voters will come out in support of this."

Tennesseans in 2014 will decide whether to ban a state income tax after the House gave final approval in April to a proposed amendment to the Tennessee Constitution prohibiting the levy. The chamber voted 88-8 for the resolution.

Proponents note that two previous governors -- one a Republican and the other a Democrat -- have pushed for a state income tax in the past.

Tennessee has never had an income tax, except for the Hall tax on dividend and interest income, state Department of Revenue spokesman Billy Trout said.

Tennessee has a 7 percent state sales tax. The average local sales tax rate is an additional 2.44 percent.

Contact staff writer Tim Omarzu at or 423-757-6651.

about Tim Omarzu...

Tim Omarzu covers education for the Times Free Press. Omarzu is a longtime journalist who has worked as a reporter and editor at daily and weekly newspapers in Michigan, Nevada and California.

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