Some bold tax suggestions for legislators

Claude Paquin's picture

It is well known that the Constitution of the state of Georgia requires the legislature to adopt a balanced budget. A balanced budget is one where the projected revenues and the projected expenses are practically equal.

It is also well known that the current tax structure of the state is producing declining revenues. So what can we do?

We have three choices: (1) reduce the expenses so they match the revenue, (3) increase the revenue so it matches the expenses, (3) do a bit of both so the numbers meet somewhere in the middle.

The Georgia Constitution’s preamble states it was “ordained and established” to preserve peace, promote the interest and happiness of the citizen and of the family, insure justice to all, and transmit to posterity the enjoyment of liberty. Here are a few suggestions that may help us do that.

It is clear we need to educate our younger citizens: our future depends on them. We need a justice system that works. And apparently we need to support and expand our means of transportation. Unless spending extravagance that could be cut has been identified in these areas, revenues need to be raised.

So here’s what I propose.

Reform the state income tax system, which is a mess. It has not been updated for inflation for years. It overcharges low-wage earners and gives too much of a free pass to million-dollar earners.

My thinking is that when Tom Glavine went to New York City to pitch for the Mets, in 2003, with a four-year contract worth $42.5 million, he exposed himself to a New York combined state and city income tax rate which today would be over 12.6 percent. Nobody heard him complain about the high income tax rates in New York. Yet he was paying only 6 percent in Georgia.

I think it’d be fair and wise to raise our Georgia income tax rate for annual incomes over $1 million to 10 percent, and to progressively increase the rate from 6 percent after $250,000.

It would also be fair to change the point where 6 percent is charged from the $10 thousand level where it is now, to perhaps $50 thousand. The standard deduction and personal exemptions should be raised to catch up with past inflation, as has happened with federal income tax.

My reasoning is that the state’s fiscal burdens should not be put on the shoulders of its teachers and other workers. I would have no hesitation to put some of these burdens on the shoulders of our extremely high paid sports and entertainment figures, and some business people like former Home Depot CEO Nardelli who left the state with $210 million in severance pay in January 2007.

Observe that this one move would reduce the state income tax paid by everyone making under $250,000. Yet, depending on the details, it might be possible to have it produce no decline in revenue and perhaps even an increase.

Make changes to the sales tax. The state of Georgia has too many exemptions from it, and that should be revisited. People are less interested in beating the sales tax when the rate is kept low, and one requirement for keeping it low is to spread it wide.

I would consider removing the exemption for groceries, as it complicates the system and obviously reduces revenues. Making this effective April 1 would give the state more revenue for the current fiscal year.

I would also eliminate the special-purpose local option sales taxes, as people are incapable of voting wisely on them, causing frivolous projects to be funded (fancy computers in our schools) while the essentials (paying our teachers adequately) wither.

Note, by the way, that these local option sales taxes do apply to groceries and people still voted for these taxes. Popular opposition to a sales tax on groceries can’t be all that high.

One could argue that what the left hand giveth (less income tax) the right hand taketh away (more sales tax). I think my proposal would yield a simpler and fairer tax system and more immediate revenue, with the potential for reducing overall taxes by getting rid of SPLOST and forcing elected officials to make more judicious spending decisions.

The sales tax (which to a merchant is an income tax) has severe limitations and is not particularly well suited to funding our transportation needs. Georgia is reputed to have the second lowest gas tax in the U.S. (behind oil-producing Alaska). Why not increase it five cents a gallon, or some other amount that keeps us on a reasonable level by comparison to neighboring states?

One thing which is cheap in Georgia, but not in other states, is a driver’s license. That too is related to transportation. It could be increased to a level comparable to that of other states. The increase in proceeds should, of course, be used for transportation-related needs.

Nobody in his right mind likes to see higher taxes. But the whole tax system has to be rational, and it must respond to the state’s need for revenue so the state can continue to provide the essentials, like public safety (police, prisons, courts), education, roads, etc.

If our legislature should be so blind as to fail to come up with solutions to its current fiscal problems more intelligent than cutting essential personnel and their pay, through furloughs and other gimmicks, then the people should rise up to the challenge in two ways.

The first step is to have more qualified people running for public office when the opportunity comes up. This year, the qualification period for candidates begins on Monday, April 26, and ends at noon on Friday, April 30. Decisions have to be made by then; after that it will be too late.

If the voters are to replace incompetent people with more competent ones, somebody has to be conscious of the timing that is required. The incumbents won’t come out and encourage you to run against them.

Then the second step comes in, which is to vote not for the candidates who raise the most money and park pickup trucks with “vote for me” signs next to the old courthouse, but for the most thoughtful candidates.

Collectively, we always get the legislature we deserve, and as the legislature goes so goes the state.

[A Fayette resident, Claude Y. Paquin is a retired lawyer and actuary with expertise in tax matters.]