Loading...Two Months Until Legislature Convenes; Speaker's Tax Reform Plan to be Debated
Speaker Hopes to Eliminate All Property Taxes; Service Tax Would Offset Revenue Loss
Read The Latest Version Of HR 900, (34 pages in Abode Acrobat’s PDF format, released November 5)
Water and transportation are clearly among the top issues the Georgia Chamber of Commerce hopes the Georgia General Assembly addresses when legislators convene in just under 60 days.
But other issues will also dominate the session, among them Speaker of the House Glenn Richardson’s proposed Constitutional Amendment to eliminate property and ad valorem taxes and to offset the revenue loss with the elimination of a number of sales tax exemptions in current state law and to create a new, broad-based tax on services, which are not presently taxed in Georgia.
More details on HR 900 [The GREAT Plan – Georgia’s Repeal of Every Ad Valorem Tax], introduced in the final days of the 2007 legislative session, have been released recently that explain more about how the speaker’s plan will work.
In a presentation to the House Republican Caucus on November 5, Speaker Richardson provided new details on the plan, which – as a proposed Constitutional Amendment – would require a two-thirds affirmative vote of the House and Senate and the approval of a majority of voters on Election Day, November 4, 2008, to be enacted.
Elimination of Property Taxes and Car Taxes
Perhaps the most appealing part of the proposal for 2 million Georgia homeowners is they would no longer pay property taxes on up to two homes – their principal residence and a secondary or vacation residence. The exceptions are local government bonded indebtedness which must continued to be paid until the debt is retired, and the levy for special tax districts. Out-of-staters who own property or homes in Georgia would pay a fee of 50 cents per square foot up to a maximum of $2,000.
Georgians would also no longer pay yearly ad valorem taxes when renewing their vehicle license plates and registrations.
Business and industry would largely be exempt from paying taxes on property (land and inventory) and vehicles, too, except for utility companies. Here are some other key details he outlined:
● The tax on groceries will be reinstated, but Georgia residents who earn up to twice the federal poverty level will get a refundable credit if they file a state income tax return. The importance of that provision, the speaker says, is non-Georgians and non-U.S. citizens would pay taxes. Prescription drugs will be also taxed, but under The GREAT Plan, Georgia residents will get a dollar-for-dollar credit for what they have spent on prescription drugs if they file a state income tax return.
● Georgians’ use of personal and professional services would be subject to a
new service tax (services provided by attorneys, accountants, plumbers, veterinarians, housekeepers, music teachers, dry cleaners, physicians, telephone and telecommunication companies, babysitters, package delivery services, landscapers, for wedding services, funeral services, haircuts, etc.).
However, the latest version of the speaker’s tax reform plan would cap the amount of service taxes paid by consumers to the first $10,000 spent per year, per service provider. Thus, for a consumer, a $15 haircut in Atlanta (which has an 8% sales tax) would cost $16.20.
Businesses’ use of services (attorneys, accountants, maintenance, etc.) would also be taxed but would be capped at an amount likely to be between $100,000 and half-a-million dollars per service, per service provider, according to the speaker’s office.
Eliminating Sales Tax Exemptions In Current Law
Under current law, some sellers and purchasers do not have to pay sales tax. For example, no sales tax is charged or collected on industries’ purchase of new parts, machinery and computer equipment. Many of these sales tax exemptions were put into law to encourage job growth in Georgia, to incentivize new investors in Georgia, retain existing jobs, and keep Georgia economically competitive with our neighboring states. Under the current version of the speaker’s GREAT Plan, the tax exemption on a manufacturer’s purchase of replacement parts, new machinery and computers, would be taxed.
Several energy-related sales tax exemptions would also be repealed, as would exemptions on the sale of machinery used to reduce pollution, film production in Georgia, coin-operated amusement games, and many others.
Some Sales Tax Exemptions Will Be Kept
Some exemptions from the state sales tax would remain, including exemptions on raw materials used in manufacturing [an important $3.2 billion incentive to businesses to attract and keep manufacturing jobs to Georgia, and which the speaker says was kept also to avoid double taxation on industry], raw materials used in agriculture, sales to hospitals, nursing homes and non-profits serving the mentally disabled, and on the sale of certain medical equipment and prosthetic devices. The sale of exported goods would also remain untaxed, keeping an estimated $740 million incentive to job creators in Georgia. Most sales tax exemptions related to education would remain in place as well.
Supporters: Local Taxes and Spending Is Out of Control
Supporters of The GREAT Plan argue that local property taxes are increasing more –substantially more – than personal income or inflation and that local government spending has grown three-times faster than state government spending. “Local governments shouldn’t continue to grow at the rate they’re growing. That’s what we’re talking about here,” Speaker Richardson recently said, noting that there are almost 1,300 separate taxing authorities and governments in the state. “People’s income cannot keep up with their property tax bill.”
Supporters: With Property Taxes, Your Home Is Never Really Yours
Proponents of The GREAT Plan also argue under our current system of property taxes, one never really owns his or her home, the definition of the American Dream. Even if you pay off the mortgage, you will still get a bill from the government each and every year. In the event the tax bill has risen so high you can no longer pay it, poof, the government will seize your home. From The GREAT Plan web site [www.thegreatplanforgeorgia.com]: “It is time to go to a system that taxes the receipt and exchange of money, not the ownership of property. It is time to eliminate property taxes.”
Critics and Skeptics: Is Our Current System Broken?
Some have argued that Georgia’s low and balanced tax system is not broken and is one of the reasons Georgia has been such a magnet for growth and new business. They also argue the current tax structure is responsible for the fact that Georgia is one of a handful of states with a ‘AAA’ bond rating.
Two years ago, economist Dr. Arthur Laffer – famous for his “Laffer Curve” and as an economic advisor to President Ronald Reagan – ranked Georgia as having the “best tax system in the country.” That ranking has some asking whether in fact the system is so badly broken that it really needs a complete re-do.
Some have said that HR 900 “will put Georgia at a competitive disadvantage versus other states for business.” Some also have pointed to the failure of other states that have implemented service taxes, only to quickly repeal them. The speaker argues that those states that implemented service taxes did not provide an offsetting tax cut, but rather used service taxes simply to increase their revenue stream. The speaker argues Dr. Laffer’s “Laffer Curve” theory that the more you tax citizens, the less they will spend and therefore the less revenue government will make.
Critics and Skeptics: Local Control; Government Closest to the People
The Georgia Municipal Association (GMA), the Georgia Budget & Policy Institute (GBPI) [www.gbpi.org/news2007q3register.htm], local school boards, county commissioners and others have questioned the need for such changes to the tax code and argued that the plan would strip them of the ability to collect and control locally collected tax dollars. “The plan removes local funding decisions from the hands of local citizens and local officials and places them in the hands of state politicians in Atlanta,” the GMA says on its website: www.gmanet.com/taxreform/. The GBPI adds that the numbers still just don’t add up; the math is suspect, they say.
What Do You Think? Your Voice Is Critical.
The GREAT Plan, according to the speaker, is still being finalized. We anticipate possible future revisions of the bill.
Your input is vital. From what you know, do you support or oppose the Speaker’s tax reform plan? Or are you waiting for more details before you decide? Let us know. Send your comments to: GovtAffairs@gachamber.com
“Whether one agrees in concept with The GREAT Plan or not, I truly believe that Speaker Richardson is sincerely committed to the most fair, most pro-business tax code in the country,” Georgia Chamber of Commerce president and CEO George Israel said. “We look forward to seeing the final version of the bill, and we will be listening closely to our members and measuring the impact on business in Georgia before we take a position on the specifics of the measure.”
