Georgia Doesn’t Have A Spending Problem

This week’s Courier Herald column. This is the third in a series discussing the state’s fiscal structure and income tax policy. You can see segment one and segment two here.

For the past couple of weeks, we’ve discussed Georgia’s income tax, which accounts for half of the revenue used to balance the state’s budget every year. It’s also setting up to be a campaign issue, as GOP statewide candidates seem to be entering into a bidding war over who can cut it the most.

Thus far we’ve seen that Georgia actually takes in less tax revenue per capita than all but one southeastern state, and that Georgia is dependent on income taxes largely because it gets almost no revenue from property taxes at the state level, plus exempts large categories such as groceries from sales taxes. In short, the revenue has to come from somewhere.

There are those, however, who remain totally uninterested in the overall revenue side of the equation and hold the steadfast belief that the state could cut spending to match any revenue losses to the state with an income tax cut. Marginal spending cuts are always a possibility. Wholesale cuts that would make a meaningful difference to income tax rates would be hard to come by.

To illustrate, let’s look at how Georgia actually spends its money – your money.

In fiscal year 2017, Georgia spent 53 cents of every dollar in state tax collections on education. Don’t let that statistic fly by easily. More than half of the state’s budget is spent on education, including K-12 and higher education in universities and Georgia’s technical colleges.

More than one third of total spending (37.5%) goes to K-12 education. The vast majority of that money goes directly to local school systems to pay for teachers. The state contributes roughly forty percent of funding for local school systems.

Using rough math, if Georgia were to cut education proportionally to eliminate the state’s income tax, then local school systems would have to come up with new local taxes to replace twenty percent of their budget. That would mean higher property taxes, higher local sales taxes, and/or cuts in actual education spending. Given that our state is only a couple of years away from teacher furloughs, it is highly unlikely that these cuts and/or tax increases at the local level would offset any positives from voters that got an income tax cut.

Other cuts to education would involve higher tuition at Georgia’s universities, and likely a reduced contribution to Georgia’s program that pays tuition at technical colleges for degrees in high demand skill fields. If the point of cutting the income tax is to make us more competitive, cutting this program that is specifically cited by many companies relocating to Georgia would surely offset it.

OK, you don’t want to cut education? Then you would have to cut the entire rest of Georgia’s budget – all of it – to eliminate the state’s income tax. That would mean no state prisons, no Medicaid, no spending on roads and bridges, no department of natural resources, and no court system.

This is where people that haven’t bothered to read this far run to the comments section and say “just cut the fat”. After all, that’s what candidate after candidate has told them is the right answer. It IS the easy answer, but it is also an empty and hollow one.

The way to measure “fat” in a budget is how Georgia spends in a category relative to other states. This demonstrates relative efficiency in delivering government services.

Georgia spends the lowest per person on Medicaid than any other Southeastern state, per a 2015 analysis. We’re about middle of the pack on the department of corrections, but more than 22 percent less than North Carolina spends per capita. We spent a decade spending less on transportation than any of our neighbors, which is why we had to pass a revised funding formula for road repair in 2015.

Those that believe “welfare” is the problem are directing their ire to the wrong place if they believe that is the cause of their state tax issues. Public assistance spending in Georgia amounted to $4.30 per person in 2015, or one tenth of one percent of Georgia’s budget in 2015. That was also the lowest amount in the southeast.

In summary, when objectively measuring against other low tax, Republican led southeastern states, Georgia’s spending on services is actually quite lean. From a fiscal standpoint, Georgia’s spending rates combined with surpluses accrued while coming out of a deep recession should be touted as a success story, not a problem that candidates are promising voters to “fix”.

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SaltycrackerDave Bearse Recent comment authors
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Dave Bearse
Dave Bearse

They can move on to the next best thing—completely flatten the tax rate and cut the personal deduction and any other deduction to make up the difference.
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An identification of the pervasive fat and waste cut over the past decade plus would be illuminating since there’s so little fat today.

Saltycracker
Saltycracker

In the business world, while companies debate raising prices vs. lowering costs, many go bankrupt because they just can’t manage or even define what to manage.