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Tax schemes could slam average folks

Q&A with Alan Essig, executive director of the Georgia Budget and Policy Institute

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Gov. Sonny Perdue wants seniors to get property-tax breaks. House Speaker Glenn Richardson wants to replace the graduated income tax with a flat tax. Lt. Gov. Casey Cagle wants to eliminate the corporate income tax.

All those proposals have one thing in common: They'd leave middle-class Georgians holding the bag.

Alan Essig, executive director of the Georgia Budget and Policy Institute, breaks down what could happen if reform-hungry legislators get their way:

What do you think the state could be doing to help the middle class this session?

What worries me more is what they might do that will hurt the middle class. What I'm most concerned about specifically in taxes and in health care is things being done that make it harder for them.

Shifting the burden of paying [for] state government from the upper classes to the low-, moderate- and middle-income could be one bad result of tax reform if it's not done right. The general proposal is to eliminate the income tax and substitute a sales tax and that would put more of a burden on [middle-class] folks.

How will shifting from the income tax to the sales tax be hurtful to the middle class?

The sales tax is a much more regressive tax system. A family making $45,000 will spend a much higher percentage of their income on living and therefore paying [sales] taxes than someone making $150,000 who will not spend the same amount of money.

Under the current sales-tax base, to replace the income tax totally, and that includes the corporate income tax where we get almost $9 billion of our $17 billion state budget, you'd have to raise the sales-tax rate six pennies. So you'd have a state sales tax of close to 10 percent in addition to the local Atlanta 4 percent. If we were to do that, the middle-income folks would be hurt by that.

If we're going to have a revenue-neutral tax reform and we're going to give large tax breaks to one population, somebody else has got to pay. And almost all these proposals floating around are giving the tax breaks to the upper-income [taxpayers].

How do we break through the schism between narrow corporate interests and the interests of the broader population?

There seems to be a disconnect in some cases between the corporate community and public policy.

Georgia has been blessed with some of the best corporate leaders who have been really interested in education reform and transportation because it's good for their business. They're not shy about saying we need more money to do things.

At the same time, these same corporations are hiring the best, highest-paid, most influential lobbyists in town to cut their taxes. So many times, businesses identify the problem but run away from solutions. They pretend, "Oh, it's not my problem," and behind the scenes they're protecting their narrow interests and trying to cut what they contribute.

The fact is we have to pay for these things. It would be nice if they got together and said, "OK, how do we raise the revenues to do this? How do we not just try to avoid every penny that we could pay in taxes, how do we talk to the public about what the real revenue situation is, and how do we handle that?" It's good for business, it's good for Georgia, it helps us grow.

What would it take for people to become more engaged in the public process?

It takes an educated, motivated public to understand what their interests really are down at the Capitol. The whole tax debate at the moment is a good example.

If you tell the average person that I'll eliminate your income tax, their first instinct is to say, "Yeah, great." It's a great 30-second spot. It's a great ad. It's great rhetoric. The sales tax is an easy tax to tell people it's better for them because they pay it pennies at a time. But when you add up a whole bill it can be a lot more.

So how do you educate folks on what the facts are and what really the cost benefits of these things are? It takes 30 seconds to say you'll pay less taxes, it takes five minutes to explain what I just explained.

What would you want to see in terms of changes to the tax structure?

We can make the tax system more progressive than it is today. We can give tax breaks to middle-income folks by strengthening and modernizing the income tax. We can give increased deductions, increased personal exemptions. We can target tax codes for inflation, so as inflation increases, those deductions and exemptions increase.

We can give a state-earned, income-tax credit, which has been extremely successful. And over 25 states have a version of the state-income-earned tax credit, which would give tax breaks to low-, moderate- and middle-income folks.

We could increase the cigarette tax, which is arguable tax policy, because it would be regressive and a declining source of revenue. The theory is the higher you make it, the fewer people smoke. The smartest thing we can do today to affect the Medicaid budget positively, 30 years from now, is to stop 16-year-olds from smoking. Raising the cigarette tax by a dollar might prevent that 16-year-old from smoking. They might not be able to afford it. So for health-policy reasons, it just makes total sense.

There are models of making taxes fairer, giving a tax break to low-, moderate- and middle-income folks, but raising revenue is another way. Instead of shifting the cost of government from the wealthy to not-wealthy, shift it back and make the system more proportional. There's lots of options if they really want to look at it.

The simplistic, political-bumper-sticker, poll-tested option is do away with taxation. But it's a fantasy, not reality.

Learn more about Georgia taxes and the state budget at www.gbpi.org.

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