On Jan. 7, the Special Council on Tax Reform and Fairness released its recommendations on whether Georgia should overhaul its tax system, moving away from income taxes and toward heavier reliance on the sales tax.
This is a big, bold move — one that could have dire consequences if the state gets it wrong.
State leaders must do something in the face of Georgia's continued fiscal troubles; if they don't fix the tax system to account for the needs of a 21st century economy and state government, we will experience additional declines in the basic economic infrastructure and quality of life services that mark a prosperous state. Indecision on tax reform will lead to more furloughs for teachers, ever larger class sizes, fewer caseworkers looking into child abuse and neglect, less public health services, and on and on.
Currently, Georgia's outdated tax system is working against the state. Georgia faces an immediate $1.5 billion budget gap due to the expiration of federal stimulus funds and inadequacies in our 1930s tax system. Even though each month brings better revenue numbers, the growth is too slow for all the ground we've lost in recent years. Georgia State University economists predict we won't return to 2007 levels of revenues until after 2015, even as our population continues to grow and more kids enroll in schools, more roads need repaving, and more prisoners enter the system.
The Council has taken a thoughtful look at Georgia's outdated tax system. Their recommendations include some much-needed changes that will better reflect today's economy, such as the move to expand the sales tax to services and to cap corporate tax breaks. These changes could help the immediate budget crisis and also ensure our tax system better tracks the economy going forward.
But the reforms proposed by the Council also include a troubling shift of the tax burden onto Georgians who are least able to afford it. The Georgia Budget and Policy Institute is analyzing the Council's recommendations, and while the numbers are not yet in, one thing is clear: Legislators must be mindful not to create policies that unfairly impact vulnerable, hard-working Georgians.
Expanding the sales tax to groceries and services without adequate offsets for low- and moderate-income working families will push the tax obligation down the income ladder. Although the Council did recommend a small credit to the income tax system, this credit is far from adequate and difficult to administer. Legislators could recraft that credit and pass a targeted, refundable earned income tax credit like 25 other states already have. That one adjustment would help protect vulnerable Georgians without compromising the many significant and important recommendations the Council made.
These recommendations are merely the first step in this process— and it's going to get a lot more politicized from here on out. A special House and Senate committee will craft legislation based on the Council's findings, and send the bill to legislators for a vote. Legislators have the opportunity to make small adjustments to the Council's findings that could go a long way toward reversing some of the shift onto low- and moderate-income working Georgians. Let's hope that they make those adjustments— and that their decisions benefit all of us.
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