Republican lawmakers are pushing a plan to cut income taxes and increase the state sales tax – a move away from funding government by taxing Georgians on what they earn and toward taxing them on what they spend.
That’s long been Republican tax philosophy in Georgia. And Georgians last year overwhelmingly backed a kind of first step, constitutionally banning any increase in the current maximum 6 percent income tax rate.
Republicans have held hearings on the latest version of the income-tax cut bill, but a major restructuring of the tax system may face a tough time in an election-year General Assembly next year. Even longtime advocates of cutting and/or eliminating the state income tax say it’s unlikely to gain much traction next year.
Critics, often-left-leaning lawmakers and groups, argue that the GOP plan would cut taxes on the wealthy – who spend a lower percentage of their income on goods and services than the poor. The poor and middle class, they argue, have no choice but to spend much of what they earn on goods and services.
Now one of the groups is putting out a comprehensive tax plan to counter the Republican proposal, making an argument that likely won’t get far in the General Assembly.
The left-leaning Georgia Budget & Policy Institute on Wednesday released a plan that it argues would cut state taxes on the poor and middle class, a group most likely to spend any tax savings, re-circulating money back into the economy. It would, however, raise taxes on upper income Georgians, which make it a non-starter in the General Assembly.
Called “A Tax Blueprint to Strengthen Georgia,” the proposal would raise the standard deduction and personal exemption on income taxes, shielding more income from taxes. It would tweak the tax brackets so married couples got the same benefits as single filers. It would create an “earned income tax credit” like the one the federal government has to help low-income earners.
And it would extend the sales taxes to the purchase of digital downloads, including software, music files, movie files, apps, games and e-books.
Downloaded merchandise isn’t taxed like physical counterparts bought in brick-and-mortar stores, the group’s tax expert, Wesley Tharpe notes. The exemption exists, he said, because state tax laws lag behind the rapid growth of the online economy.
The group’s report says Georgians are expected to spend nearly $2.2 billion on digital merchandise over the course of the 2016, growing to more than $2.7 billion in 2020. State and local governments are losing $82 million to $100 million a year by not taxing downloads, it says.
Besides the fact that the plan would tax digital downloads, the bad news for some would be that it also calls for limiting income tax deductions. Stuff like mortgage interest could be deducted, but there would be limits. Nothing that would impact poor and many middle-income folks, mind you, but the limits would hit some upper income Georgians hard.
The policy group says the plan would be revenue neutral – meaning it would raise the same money as the current system. They say it would cut average taxes for 60 percent of Georgians at the bottom of the income scale, change little for the next 20 percent on the scale, and raise taxes on top earners.
Here is the full report: