For simple and fair, state income tax tops the alternatives

By Tom Baxter

Taxes should be simple and fair. You hear that mantra a lot these days, and it has a special power around this time of year. The more I meditate on it, the more my mind is drawn toward the raging irony that the simplest and fairest tax my household pays, the state income tax, is the very one which some seem hell-bent on getting rid of.

Start with simple. Like thousands of Georgians, I use a computer tax preparation program to file our federal and state taxes every year. The federal taxes are a pain, especially since I pay self-employment tax and have to send Uncle Sam a check for estimated taxes four times a year.

But our state income taxes are literally as simple as pushing a button. It takes less than a minute for the program to compute my state tax after the drudgery of calculating the federal income tax is finished. And it’s a pleasant interlude, because this year, like last year and several years before that, we’ve had to write the federal government a check for more money while we’ve received a refund from the state. Sure, I know that’s our money we’re getting back, but it enhances the experience nevertheless.

For us, the state income tax is more than fair, because a significant portion of our income is exempt. It really makes no sense that what my wife and I still work to make should be taxed, while what we receive from any kind of retirement income isn’t. This is especially so, since we’re evolving into a system where the line between employment and retirement is becoming ever more fuzzy.

But we’ll take the gift. And even if an inequity favoring those who need it least has been inserted into the tax structure, it remains the case that the state income tax isn’t the most onerous portion of anyone’s tax burden. Nor does the state income tax do anything like the harm to businesses in the state comparable to that caused by failing schools that can’t generate qualified employees and roads that slow the delivery of goods to a crawl.

Don’t think that I’m a masochist. I dislike parting with my money as much as anyone, as the missus will tell you. But any tax has to be judged by what it will be replaced by, or what might be subtracted to make up for the net loss of revenue. And in the case of the state income tax, the alternatives are pretty grim.

Though he still has to empanel a group of economists to come up with the precise number, state Rep. Tom Kirby, who introduced a bill that would eliminate the state income tax on the last day of this year’s session so that it would be teed up for next year, has estimated it would take an increase in the state sales tax of 3 to 4.8 percent, with the elimination of exemptions like the one on groceries, to make up the difference. We can dismiss the lower estimate out of hand, since the low estimate never materializes, no matter how many economists you throw at it. Let’s give the high estimate the benefit of the doubt and accept it, though some don’t think it’s enough. So let’s say we’re talking about increasing the current 4 percent sales tax level to 8.4 percent. That’s nearly a point higher than California, which currently has the highest rate in the country at 7.5 percent.

“By removing the income tax, we can increase the number of tax payers and reduce the amount everyone pays,” Kirby said. He justifies this seeming logical inconsistency with the argument that “tourists and visitors” would generate a greater portion of the revenues the state takes in. But since “tourists and visitors” is in many cases a euphemism for “people driving to Florida,” the strong likelihood is that any natural increase in revenues from non-Georgians would be offset by people spending less here and driving faster to get where they’re going. (And by the way, why hasn’t the magical effect of taxing tourists done more to help California?)

But there’s something else being insinuated by the assertion that we would increase the number of taxpayers, and it’s at the root of a lot of this talk about “fairness.” It’s the idea that those who don’t make enough to qualify to pay income taxes aren’t paying any taxes at all, even though they pay a far greater share of their meager earnings in sales taxes than those who make enough to save some of it.

Some of the strongest supporters of this idea aren’t really well off enough to be the real beneficiaries. Instead, they are driven by the human inclination to admire those in the category they wish they were in, and shun those in the category they fear they’re falling into. They think their emotions are based on their ideology, but when it comes to finances, ideology is and always has been a tool for the cunning and a snare for the foolish.

Georgia is an underwater state. The proof for this lies not only in the  news that more than 40 percent of the homeowners in this state have mortgages greater than their homes are worth. It is also evidenced by the two gunmen, both at the point of financial ruin, who wreaked havoc last week in separate incidents which left two police officers, two firefighters and a bystander wounded before both of the assailants were shot dead. We even have a governor who took office owing more than he was worth.

The elimination of the income tax and hiking of the sales tax is being billed as yet another magic-bullet panacea for these ills, resulting, according to its supporters, in an “exponential” increase in new businesses.

In fact, what it would do is raise the total cost of a $100 bag of groceries to $108.50 for every family already struggling to get by. It would force restaurants fighting to stay open to increase the tab for a $100 meal by another $4.50. By eliminating the marginal tax advantage of owning a home, it would make it that much more tempting simply to walk away from a mortgage, sinking neighborhoods even deeper into the quicksand of foreclosure. The burden wouldn’t fall on the deadbeats; it would fall on the firefighters and the cops.

Simple and fair. Meditate on that mantra the next time you’re in a shopping line at a grocery store or a mall, and focus on whether eliminating the tax which takes so little time or real pain and raising the tax you pay every day is really a path to wisdom.

Tom Baxter has written about politics and the South for more than four decades. He was national editor and chief political correspondent at the Atlanta Journal-Constitution, and later edited The Southern Political Report, an online publication, for four years. Tom was the consultant for the 2008 election night coverage sponsored jointly by Current TV, Digg and Twitter, and a 2011 fellow at the Robert J. Dole Institute of Politics at the University of Kansas. He has written about the impact of Georgia’s and Alabama's immigration laws in reports for the Center for American Progress. Tom and his wife, Lili, have three adult children and seven grandchildren.

3 replies
  1. The Last Democrat in Georgia says:

    Excellent article, Mr. Baxter and many thanks to you for touching on the issue of how Georgia’s state government should levy and collect taxes.
    Personally, I like the theoretical concept of eliminating income taxes and replacing them with consumption-based taxes.
    Though in reality, and especially after watching what happened in Louisiana after Republican Governor Bobby Jindal tried to abolish the state income tax there and replace it with a much-higher state sales tax in a likewise very-conservative state where Republicans are as supremely dominant politically as they are in Georgia, I don’t necessarily know if the concept is workable politically.Report

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  2. The Last Democrat in Georgia says:

    Even though the Georgia FairTax proposal involves abolishing the state’s income tax, I can see a scenario play-out where the public has an extremely-negative reaction to the news of the state sales tax going up by what could be as much as roughly five percentage points to 9%, despite Georgia being thoroughly-dominated by conservatives at the statewide level.
    Despite the state FairTax proposal being unpopular and causing Republican Presidential hopeful Governor Bobby Jindal’s popularity to plummet in the very-conservative state of Louisiana, I can also see a scenario where the Republican-dominated Georgia Legislature easily passes the state FairTax legislation because of Georgia’s much-larger (and much less politically-engaged) transient population than Louisiana.Report

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  3. The Last Democrat in Georgia says:

    The virtual Republican supermajority in the Georgia Legislature is also under very-heavy and increasing pressure from its political hard-right to abolish the state’s income tax and replace it with the FairTax, which is an extremely-popular concept in many circles of the politically-dominant Georgia Republican Party.
    In any case, at the moment, because of increasingly blistering political pressure from the far right of the Georgia GOP, there appears to be the amount of support that is needed within the (virtual) Republican supermajority of the Georgia Legislature to push through State Representative Tom Kirby’s state FairTax legislation without even one Democrat vote, though that political calculus is very-much subject to change depending on how the public reacts to the news of what could be a substantial increase in the state sales tax.Report

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