Convening a Georgia tax reform commission in the summer of 2010 is a bit like tightening environmental regulations after an oil spill — a fine idea, but one that would have been more helpful earlier in the game. Only months ago, the state legislature enacted a costly new income tax giveaway for the best-off seniors and paid for it, in part, by gutting the only refundable credit available to low-income Georgians. This week, the "Special Council on Tax Reform and Fairness for Georgians," which is charged with revamping the state's tax code, convened and heard testimony from ITEP staff and others.
ITEP's testimony describes the long-term structural challenges facing Georgia's main revenue sources, and surveys the most creative (and most dangerous) responses to these structural threats. By focusing on options that have been implemented or seriously discussed in other states, the testimony provides a very practical working guide for moving Georgia's tax system into the 21st century.
ITEP's testimony focuses on four major categories of state taxes levied in Georgia: sales taxes, corporate income taxes, personal income taxes, and gas taxes. It identifies workable reforms (and unworkable red herrings) of which Council members should be aware as they formulate their recommendations. In each case, the testimony spotlights efforts to raise needed revenues and eliminate tax inequities by broadening the tax base to eliminate loopholes for various special interests.
On the income tax front, ITEP's testimony focused on the surprising, but laudable growth in the number of states that have pared back excessive tax breaks for capital gains, itemized deductions, and retirement income in recent years. In discussing the sales tax, ITEP noted that while relatively few states have succeeded in meaningfully expanding the sales tax base to include more services in recent years, a growing number are considering sensible plans to do so in 2010. The testimony also took note of the growing use of so-called "Amazon taxes" designed to ensure that e-commerce sales should be at least partially taxable.
The testimony also noted the folly of "racing to the bottom" to provide industry-specific or even company-specific tax breaks for businesses as a relocation incentive, and discussed how Georgia could enhance its long-inadequate transportation revenue streams by bolstering its gas tax. Numerous states have recently increased their gas taxes, and many more have seriously discussed gas tax increases or gas tax restructuring aimed at improving revenue sustainability.
More so than is usually the case with tax reform commissions, the Special Council's recommendations could carry some weight when the legislature convenes next year, not only because its high-powered roster includes Governor Sonny Perdue but also because its recommendations are required to be introduced, "without significant changes," for a vote in the legislature next year. Hopefully, the growing number of sensible base-broadening measures enacted by other states will provide the Council with a template for reform.