By Guest Columnist ALAN ESSIG, executive director of the Georgia Budget and Policy Institute
Stop any Georgian on the street and ask if our state’s taxes should be “fair,” and the answer will almost surely be “yes.”
But what does fairness mean?
A good explanation is that you’re taxed according to your ability to pay — the more you make, the more you contribute. Public investments in education, roads and public safety are vital ingredients in the success of the wealthy.
Therefore they have a greater responsibility to give back more to support those public necessities. Low income and middle class people are expected to pay less while they work to achieve the American dream. Fairness has been a bedrock principle of American tax policy for generations.
Is Georgia’s tax system fair?
Hardly. A Georgia family making less than $16,000 a year pays 11.7 percent of its yearly earnings in state and local taxes. But a family making more than $433,000 per year pays 6.9 percent.
The blame for this upside-down situation goes to the structure of Georgia’s state income tax. It’s essentially flat, which means that most Georgians contribute the same share of their income regardless of their wealth or lack of it.
Worse, the income tax also contains an array of credits and exemptions that benefit higher income taxpayers and businesses; and leaves Georgia with a heavy dependence on state and local sales taxes, which are disproportionately paid by lower and middle income earners.
To create a fairer and more productive system, Georgia policymakers need to make sure the income tax remains the primary source of the state’s ability to provide essential services, and restructure it so those at the bottom pay a smaller share of their income than those at the top. Such a graduated income tax is the cornerstone of an equitable tax policy, and it is found in most states to a greater extent than in Georgia.
Unlike sales and property taxes, the income tax minimizes the share paid by low and middle income households. It requires more from those with greater wealth, and it generates enough money for investments in what helps to create jobs and build a strong economy: good roads, excellent schools, abundant parks, and well-equipped police. Achieving this will require legislators to eliminate many tax credits and exemptions, establish rates that rise with income and possibly create a new top bracket.
Unfortunately, this is not the road Georgia’s leaders appear to be taking. Proposals surfacing from the state Senate include increasing the sales tax to 5 percent from 4 percent and removing the current exemption on food in order to pay for a new business tax break and an income tax rate cut of over one-third.
The result would be a sizable tax increase on a majority of Georgians and a huge tax cut for the wealthiest. It seems there is a growing belief among Georgia’s leaders that fairness is simply a luxury we cannot afford.
The reason they cite?
The income tax “is the biggest detractor to bringing jobs to Georgia,” according to Senate Finance Committee Chairman Bill Heath (R-Bremen). This narrative is as common as it is incorrect.
Economic evidence simply doesn’t support such a claim. For one thing, Georgia is a low tax state to begin with – 49th in per person tax share nationwide – yet Georgia has lost more jobs than almost any other state. Two states that have no personal income tax – Florida and Nevada – were among the hardest hit by the Great Recession, while supposedly“high tax” states such as Minnesota and Vermont fared much better.
Supporters of income tax cuts rarely talk about the drawbacks. Those drawbacks, however, are abundantly clear: overcrowded classrooms, shoddy and congested roads, fewer cops on the streets, and countless other challenges that make Georgia less attractive to businesses and families. Income tax opponents might view these as unfortunate necessities of job creation, but that is a false choice—fair taxation does not discourage economic growth, it enables it.
A healthy income tax would provide the resources Georgia needs for job-creating investments in education, workforce development, and innovation. It would bring in money to help protect and enhance our quality of life, a key driver in attracting new businesses and jobs. It would keep more money in the hands of lower and middle income consumers, who are more likely to spend it locally.
Further cuts in the income tax, on the other hand, would mostly benefit higher income earners who are more likely to save the extra money or spend it outside the state. Shifting away from the income tax would also disrupt Georgia’s relatively balanced money flow, one of the key factors in our consistent AAA bond rating that keeps the state’s borrowing costs low.
The choices we make on tax policy should not be about abstract political and economic philosophies or partisan posturing. They should be about what kind of state we want to be—now and in the future. Georgia’s current unfair and inadequate tax system not only burdens hard working people today, but constrains our ability to invest in the economy of tomorrow.
A couple with $16,000 income would pay about $358.00 in state income tax, using the standard deduction. This is 2.2% of their income; subtracting it from the 11.7% you quoted leaves 9.5% for “local taxes.” Assuming that the couple doesn’t pay property taxes, that seems to leave 9.5% for sales taxes. The highest rate in Georgia is 8% (inside the City of Atlanta, no surprise). So, what’s the other 1.5%? And are you assuming that they pay sales tax on every penny they make?
A couple with $16,000 income would pay about $358.00 in state income tax, using the standard deduction. This is 2.2% of their income; subtracting it from the 11.7% you quoted leaves 9.5% for “local taxes.” Assuming that the couple doesn’t pay property taxes, that seems to leave 9.5% for sales taxes. The highest rate in Georgia is 8% (inside the City of Atlanta, no surprise). So, what’s the other 1.5%? And are you assuming that they pay sales tax on every penny they make?
“Is Georgia’s tax system fair? Hardly. A Georgia family making less than $16,000 a year pays 11.7 percent of its yearly earnings in state and local taxes. But a family making more than $433,000 per year pays 6.9 percent.”
But, Mr. Essig, keep-in-mind that those families that make six figures or more per year pay much more in property taxes and are responsible for the creation of many more jobs than those who make five figures, or less. While that family that makes less than $16,000 a year may pay 4.8 percent more in income taxes by your calculations, the family that makes more than $433,000 per year likely may have a small business and may be responsible for the employment of at least a handful of employees, each of whom may be paid five-figure incomes by the family that makes six figures per year enabling those employees to each make their own contributions to the tax base. The family that makes six figures or more also likely has more property and a larger house which means that they pay substantially more in property taxes than the family with the five-figure income who either has a smaller house or rents. The six-figure income family may also purchase more retail items with their increased income than the family with the lower-end five-figure income which means that they pay more in sales taxes than the five-figure income family.
Just because a six-figure income family may pay slightly less of a percentage in income tax than a five-figure income family doesn’t necessarily mean that they are paying less in taxes overall. Besides, even in your calculation, Mr. Essig, the family that makes more than $433,000 per year still pays nearly 16 times more in yearly taxes ($29,877) than the family that makes less than $16,000 per year ($1,872). When you figure in that the the five-figure family pays more in property, sales, ad valorem (because they likely own better vehicles which they likely buy more often) and possibly even corporate taxes if they own a business, the overall tax contribution more than offsets the slightly lesser percentage that they may pay in income taxes.
“The income tax “is the biggest detractor to bringing jobs to Georgia,” according to Senate Finance Committee Chairman Bill Heath (R-Bremen). This narrative is as common as it is incorrect.”
I agree that State Senator Heath’s analysis is dead wrong. The income tax is NOT the biggest detractor to bringing jobs to Georgia. Lack of adequate WATER and TRANSPORTATION INFRASTRUCTURE are the biggest detractors to bringing jobs to Georgia.
Thanks for your comments and questions. If any changes are made to the current tax structure, I’d hope the system wouldn’t become more regressive than it already is. What’s wrong with every Georgian paying the same percentage of their income in state and local taxes (that is all taxes, not just income taxes)? If that was a goal, then we would need to change the tax system so that those at the top paid more and those at the bottom and middle paid less. The income tax would be an important vehicle in accomplishing that.
Also, the percentages account for all state and local taxes, not just income taxes. For information on the methodology visit http://www.itepnet.org/wp2009/ga_whopays_factsheet.pdf.
Add to the mix the fact that , in our State, there is no State minimum wage for company’s employing less than 6 people. You have 5 employees, you can pay them $1 an hour if you want (and can find 5 starving people). We have the lowest (or one of the lowest) State Minimum Wage structures in the Country and keeping it that way is to entice Companies to “Come to GA and Start a Sweatshop”. Our “Business Friendly Environment” really means that our State won’t take care of it’s average Citizens best interests.
Mr. Essig sounds like a “progressive” thinker with his emphasis on “fairness.” This is consistent with his job history as a government employee as far back as his resume’ extends. His Georgia Budget and Policy Institute is part of the State Fiscal Analysis Initiative that is funded in large part by the Annie E. Casey Foundation, the Charles Stewart Mott Foundation, the Ford Foundation, the Open Society Institute, the Stoneman Family Foundation, the Public Welfare Foundation, and the W.K. Kellogg Foundation. You should not be surprised to learn that these organizations all have a “progressive” focus, which is to say the left wing of the Democratic Party. Accordingly, this article can be viewed as a part of President Obama’s 2012 re-election campaign.
As far as fairness goes, as long as almost half of the potential Federal taxpayers pay NOTHING in taxes, I don’t want to hear any twaddle about fairness.
What Mr. Essig is not writing is that he wants to shift more of the State income tax burden onto those with higher incomes, and eliminate all State income taxes for an increasing percentage of potential taxpayers. The end game is that those who pay no taxes (and have no skin in the game) will have control of the ballot box. They will then vote as government wants them to, because they depend on the government for income and services. Government needs voters who need government.
First let’s remember that even though the GBPI claims to be non-partisan, they are a leftwing group that always advocates for higher taxes and more government social spending. And they receive funding from George Soros related groups and are part of a Soros initiative to establish similar groups in all 50 states.
My fair share of income tax is the exact same percent of my income as every other Georgian. The fair share argument is a liberal code word for redistribution of wealth.
Every one should contribute based on their income regardless of source of the income be it investments or welfare payments.
My humble southern opinion!
The 11.7% figure for the hypothetical family earning $16,000 was probably drawn from a study by the Institute on Taxation and Economic Policy. http://www.itepnet.org/whopays.htm Georgia is on page 36. It gives a through breakdown of that percentage. Read it and you’ll clearly see that Georgia’s tax structure today is clearly not fair. Its also in this Southerner’s humble opinion, not Biblical, not good capitalism (Adam Smith in Wealth of Nations says that necessities of the poor should be taxed less than the luxuries of the rich), not smart because economic inequality diminishes the productive capacity of the society as a whole, and not even Republican until the Tea Party decided that the same tax rates that Reagan set for the wealthy were to onerous for billionaires today. This is not twaddle, conspiracy or socialism, its common sense and common decency!
http://www.itepnet.org/whopays.htm
@ garymoss
From their website, “ITEP is governed by a group of leaders from academia, labor, and the policy community…” It is just as politically left wing as GPBI and SFAI, and is an extension of the Democratic Party. It should not be viewed as objective.
Until everyone pays taxes (and has skin in the game), and everyone pays the same percentage of their income in taxes, there is nothing fair or equitable. Any talk otherwise is twaddle.
@ Burroughston Broch, I don’t see your quote on their website, http://www.itepnet.org, I do see that they list the the type of analysis they do, with sources and data. They have demonstrated with great clarity that in Georgia the richer one is, the less they pay in state taxes. And you have offered nothing to prove otherwise, nor have you refuted the rest of my argument. You have repeated the “twaddle” though, which I guess in Tea Party land must constitute a rebuttal.
@ garymoss
You didn’t look very well, so here’s the link: http://www.itepnet.org/about/board_directors.php. What I quoted is at the top of the page.
I don’t see how you make the leap of logic from their content to your statement “in Georgia, the richer one is, the less they pay in state taxes.” That is obviously not true:
1. Georgia taxes are mainly sales taxes and income taxes. The sales tax is related to consumption and the income tax to income. Neither is related to personal wealth (richness).
2. Individuals with high personal wealth and/or high income tend to consume more and thus pay higher sales taxes than those with low personal wealth and /or low income.
3. Individuals with high income pay income taxes at the top rate of 6% and thus pay higher income taxes than those with low income.
Given 1, 2, and 3, how would a person with a lower income pay more than someone with a higher income?
If your argument is the above, I just refuted it.
I am not a Tea Party member, so you’re off base on that one as well.
And the word twaddle still applies.
@ Burroughston
You’re right, I didn’t read that page. I see that statement and I see one union member listed out of the ten directors. For the rest of it, you are changing the argument away from your original statement, which I was answering.
You said, “My fair share of income tax is the exact same percent of my income as every other Georgian.” First, you obviously missed or ignored the fact that the author of this article was talking about the percentage of state and local taxes, not just income tax. I provided the evidence for his assertion, a chart from a credible source using impeccable data, that shows at every stage the percentage of state and local taxes paid goes down, from 11.7% for the lowest wage earners, to less than half of that for the top 1% of wage earners. But you have not proved your assertion with anything other than your biases.
@ garymoss
While the author began discussing the total state and local tax burden, he quickly moved his focus to the state income tax system. You will find the transition paragraph to the right of his photo. The rest of the post is focused on the state income tax system. It is you who has mis-represented things.
The higher one’s income, the more one pays in state income tax. End of story, except that the author (and perhaps you?) seems to advocate higher (fairer?) state income tax rates for those with higher incomes.
It is still all twaddle.
As for my biases, I am pleased to say that I have them. Biases are based on experience hard won, while prejudices are based on no experience. I suggest that you learn the difference.
Twaddle,
The last paragraph to the right of his photo is – ‘Worse, the income tax also contains an array of credits and exemptions that benefit higher income taxpayers and businesses; and leaves Georgia with a heavy dependence on state and local sales taxes, which are disproportionately paid by lower and middle income earners.” One more time, “heavy dependence on state and local sales taxes.” Got it, twaddle, he didn’t change the argument?
Again, and for the last time, his argument and your failed twaddle was that “My fair share of income tax is the exact same percent of my income as every other Georgian.” One more time, your twaddle was about “percent,” and having been proven wrong, you once again change it to an amount, not a percent. “The higher one’s income, the more one pays in state income tax.”
I won’t waste any more of time with you. You can have the last twaddle, its all you got.
@ garymoss
The purpose of the article is to push for higher income tax rates on those with higher incomes. Agree or disagree?
I say that the”fair” share of income taxes for everyone is the same percentage, not 0% for may taxpayers and 12% for others. The more income you have, the more you pay.
Nothing has changed.
I spent several years managing a small business while holding down a contractor position at the Centers for Disease Control. Two years ago, I decided moved back to ny home state of Texas where state income tax is 0%. What, you say? Yes that’s right, 0%. No state income tax. You think that might be why unemployment is so low in Texas, and why Texas is one of the best places in the U.S. to start a business? If Georgia wishes to remain competitive with states like Florida and Texas, my advice is to ditch the state income tax completely. Georgia is a beautiful state. I would have loved to have lived out my life in there, but I didn’t see paying the 6% on top of my federal incomes for the “privilege” of living there. I would consider moving back and expanding and growing my business there. Until it does, forget about it.
I spent several years managing a small business while holding down a contractor position as a statistician at the Centers for Disease Control. Two years ago, I decided moved back to my home state of Texas where state income tax is 0%. What, you say? Yes that’s right, 0%. No state income tax whatsoever. You think that might be why unemployment is so low in Texas, why Texas is one of the best places in the U.S. to start a business, and why so many corporations have relocated there? If Georgia wishes to remain competitive with states like Florida and Texas, my advice is to GET RID of the state income tax completely. This shouldn’t even be an issue being debated. Georgia is a beautiful state. I would have loved to have lived out my life in there, but I didn’t see paying the 6% on top of my federal income taxes for the “privilege” of living there. I would consider moving back Georgia and expanding and growing my business there if the state income tax is abolished. Until it does, I wouldn’t even consider it.
I spent several years living in the Atlanta area managing a small business while holding down a contractor position as a statistician at the Centers for Disease Control. Two years ago, I decided moved back to my home state of Texas where state income tax is 0%. What, you say? Yes that’s right, 0%. No state income tax whatsoever. You think that might be why unemployment is so low in Texas, why Texas is one of the best places in the U.S. to start a business, and why so many corporations have relocated there? If Georgia wishes to remain competitive with states like Florida and Texas, my advice is to GET RID of the state income tax completely. This shouldn’t even be an issue being debated. Georgia is a beautiful state. I would have loved to have lived out my life in there, but I didn’t see paying the 6% on top of my federal income taxes for the “privilege” of living there. I would consider moving back Georgia and expanding and growing my business there if the state income tax is abolished. Until it does, I wouldn’t even consider it.
Income tax in Georgia needs to go away, period. Tennessee doesn’t have an income tax, their sales tax covers everything at 7% statewide, while using local-level taxes for county, school and city purposes. Locally, sales tax can approach 10%. Their revenue stream is better, their budget is larger than the state of Georgia. This screwing by state govt in Georgia has gone on long enough.