When Budget Facts Meet Campaign Rhetoric

This week’s Courier Herald column:

What are you going to believe? The facts, or what you know to be true?

A bidding war seems to be breaking out among some of the Republican candidates for Governor with respect to who can cut state income taxes the most. Cutting taxes, is of course, a core mantra within the GOP. To hear some of the talk, however, one might think Georgia has been run by Bernie Sanders and Elizabeth Warren for the past decade instead of…the four announced Republican candidates for Governor – all currently elected to serve at the state capitol.

Yes, Georgia’s state income tax is among the highest in the Southeast. Our closest competitor and most similar state, North Carolina, has recently cut their state income tax rate to 5.49%. Georgia’s top rate is 6%.

There is no evidence that North Carolina has achieved a competitive advantage for this change. Quite the contrary. After North Carolina eliminated its film tax credit, they lost most of their movie and TV industry.

Georgia’s is thriving, creating Georgia jobs. Last year, 85% of the crews working on Georgia film productions were Georgians, with an average salary of $84,000 per year. In the high wage tech industry, Georgia is also seeing firms that would once have been a lock for the research triangle find themselves with new peach state roots.

Is a cut of Georgia’s income tax rate worthy of debate? Sure. Matching North Carolina’s tax rate would require either cutting the state budget by a bit over $1.6 billion, or replacing that revenue with other taxes. It would be nice to see the need for these adjustments documented with something other than the need for bragging rights, however.

Cascading further into the bidding war, we also have talk that Georgia needs to get rid of its income tax altogether. This is relatively impossible, and any candidate suggesting this should happen either doesn’t understand the state’s revenue structure, or more likely, hopes you don’t.

There are two main facts that you need to know about this: Georgia gets roughly half of its tax revenue every year from the state income tax. Also, Georgia by law must balance its budget every year.

Most of these “plans” suggest that the income tax could be replaced by an increase in sales taxes. They can’t.

Georgia takes in approximately one quarter of state revenues currently from sales taxes. That’s roughly half the amount we take in from income taxes. Without broadening the sales tax base, that would mean to be revenue neutral Georgia’s state sales tax rate would have to go from 4% to 12%. Adding in local sales taxes, residents would see the average sales tax rate at about 15%, with some as high as 16.9%. This would not make Georgia more competitive.

Of course, we could always broaden the base to keep those rates down. That would mean adding the tax back on groceries, which is politically problematic in an increasingly populist political environment. We could also tax services, which creates new competitiveness problems for larger firms that have regional or national headquarters in Georgia.

Then there’s the spending side of the ledger. Some point to Georgia’s budget growth from $17 billion to $25 Billion as evidence that spending is out of control. Except, that budget growth has covered a decade and a ten percent population growth. When adjusted for inflation and growth, Georgia’s FY 2017 budget was 9% lower than the peak budget in FY 2008 before the great recession.

Most candidates would want to tout Georgia’s fiscal success and restraint over the past decade. But they know that their base thinks they tax and spend too much. They have the hopeless task of trying to run on their record while trying to run against it.

The problem with this can be seen currently in Washington, where many Republican Senators are trying to explain why they can’t just repeal Obamacare after 7 years of campaigning and fundraising on that very promise. Promising to eliminate a tax that won’t be eliminated is a stunt to win a current election that may cost Republicans a future one over undelivered promises.

There’s still time for the major candidates to self-correct and run on facts. As such, we’ll spend the next few weeks here doing a deep dive into Georgia’s fiscal situation. It’s important for you to know the facts, and for the candidates to know that you know them.

Otherwise, we’re going to have nine months plus a runoff of Republican candidates running against their own record. Then, they’ll have a few months running against Democrats who, conveniently, will also be running against the GOP’s record.

Facts matter. November is coming.

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IrishPat
IrishPat

Paying too much in state income taxes? Reduce your tax liability and help your local hospital by taking advantage of the Rural Hospital Tax credit.

Andrew C. Pope
Andrew C. Pope

Film and television production went sharply downhill in Florida after the state got rid of its film and TV tax credits. Ballers, the HBO show starring the Rock moved from Miami to LA primarily due to the elimination of film incentives.

bethebalance
bethebalance

The best candidate, and the one who should be given (and may need) the most help, is the one who educates voters, who helps build understanding of the benefits and efficiencies of present taxation, and ways to improve it. More educators, less class clowns (who do nothing but appeal to immature emotion).

ScottNAtlanta
ScottNAtlanta

Here’s the money quote
” This is relatively impossible, and any candidate suggesting this should happen either doesn’t understand the state’s revenue structure, or more likely, hopes you don’t.”
I would say the same thing about Federal spending. Big difference is GA has to live within its means. It doesnt print money and with cuts in Federal spending to states that makes a difference.

Saltycracker
Saltycracker

Cutting taxes is code for rearranging. The income tax rate could be reduced by gleaning/flattening out the deductions and apply both income and sales rates across the board, few deductions and exclusions. Tax virtually all sales at a lower rate. Revenue would increase and it would be easier to keep folks compliant.

The corporate tax is primarily a political honey pot, eliminate it.

bethebalance
bethebalance

The state spends a lot to keep businesses in business, and competing on a level playing field– infrastructure, courts, permitting and licensing, etc., etc. Seems logical that businesses would pay for their share of benefits.

Brett
Brett

The direction I would like to see tax policy and tax reform move in Georgia: No rate increase on any non-excise tax revenue source No increase in the sales tax rate Reduce personal income tax rates (moderate reduction proposed last session) Eliminate corporate income taxes No tax on business inputs Broaden the sales tax base (Provides opportunities for increased revenue at current rates) Reduce the number of income tax brackets Adjust ‘sin’ taxes to the average of all states or the average of border states (Would result in a reduction in some tax rates and an increase in others ultimately… Read more »

augusta52
augusta52

But Charlie, isn’t Santa Claus always more popular than the Grinch?!? Seriously, you make some good points about the difficulty of ditching the income tax, or even reducing it. Certainly to eliminate it, you would need a higher state sales tax (Florida’s is 6% statewide, Tennessee 7%)—and with the city of Atlanta sales tax (state and local combined) now at almost 9%, you might get sticker shock if you were to pay 10% or even more. The revenue has to come from somewhere—eliminating “waste, fraud and abuse” won’t cut it in the real world of the state budget, where the… Read more »

FilmGuy
FilmGuy

85% of the crews are from Georgia? Says who? Not the crews on most large budget productions. And $84,000 a year? Yeah, that’s from the MPAA and its a national stat boosted by CA & NY. Pay in Georgia is closer to $50k. Also no mention of how much the program is costing the taxpayers…last year alone it was $606 million according the the Governor’s Budget Report. Can you say unsustainable?

FilmGuy
FilmGuy

I am not from California and I attack their ridiculous handout to Hollywood as well. No, your numbers about 85% of the workers being from Georgia did not come from GDED. You probably did get the $85,000k per year stat from them, but you failed to realize the stat actually originated from the MPAA, and its a couple of years old (and not about Georgia): http://www.mpaa.org/wp-content/uploads/2015/02/MPAA-Industry-Economic-Contribution-Factsheet.pdf As for the “real” numbers from GDED, if they are so real why did they get called out by politifact? http://www.politifact.com/georgia/statements/2015/aug/07/georgia-department-economic-development/film-industrys-impact-georgia-economy-overstated/ And the “real” numbers lie with the Georgia Dept of Revenue, as they… Read more »

augusta52
augusta52

Charlie, it is interesting you mention that today, about a quarter of state revenues comes from the state sales tax. I checked some figures from 30 years ago, and back then, the sales tax provided about a third of total state revenues—and that was when the state sales tax was 3 percent (it went up to 4 percent in 1989). Also back then, Florida’s was 5 percent (6 today), and Tennessee’s was 5.5 percent (7 today). In the late 1980s, then-Governor Bob Martinez tried to institute a tax on services, and it went nowhere (doubtless contributed to his defeat in… Read more »

augusta52
augusta52

Point of clarification on previous blog—Bob Martinez was governor of Florida in the late 1980s and into the early 1990s–the author of the unpopular services tax.

Saltycracker
Saltycracker

“It’s easy” nah, it’s about impossible. Having sat through fair tax attempts it was clear the exception, exemption mob would prevail.
Something as close to a pure flat tax eliminates a lot of the noise fighting over the other side of the ledger. For laughs and giggles start with shredding schedule A and crank up the standard deductions.
The idea is not to reduce taxes but increase revenues by efficiency, getting more folks with skin in the game and with more in a similar situation, compliancy.