Reducing, eliminating Ga. state income tax brings problems, report concludes

ATLANTA   – A report released this morning highlights the political challenges to Republican proposals to reduce or eliminate the state income tax.

The study by an Atlanta think tank geared toward increased spending on social programs, the Georgia Budget and Policy Institute, warns that any increase in the sales tax to offset income-tax reductions will boost the burden on 80 percent of Georgians.

A Georgia Tech economist who advocates a diminished income tax, Christine Ries, dismisses the report’s conclusions as being skewed by biased data.

Wesley Tharpe, the institute’s policy analyst who authored the report, said since low-income people spend a greater share of their income then boosting the tax on their spending will hit them harder.

“Changing the balance of taxes and how much the state relies on each kind of tax shifts the burden,” he said.

Ries counters that higher-income people spend more money. They may pay a smaller share of their income on consumer purchases, but it amounts to more money.

This year, several states have passed legislation to reduce their income taxes. Before this year, the last state to do it was Alaska 50 years ago when it struck gas on state-owned land, allowing it to end the tax and instead actually give each resident a check from the government.

Members of the Georgia House and Senate introduced various bills to limit, cut or eliminate income taxes during the 2013 session of the General Assembly. None came up for a vote, but observers think they might next year.

Ries has become a leading advocate. She argues logic suggests a government should tax what it wants less of and not tax what it wants more of.

“If you tax consumption, you’re going to get more income, more savings and more investment in the future,” she said.

On the other hand, Tharpe and the think tank are becoming vocal opponents of income-tax reduction. They argue that it won’t stimulate the economy.

“I think the alternative viewpoint is based on a misreading of the economic evidence,” he said.

He estimates halving the income tax would require a 9.6 percent state sales tax on top of what local governments charge, plus a tax on food and services like haircuts and cable television. Eliminating the tax completely would require either a 14.5 percent sales tax or a 13.8 percent tax if groceries and prescriptions are also subject to the sale tax.

What other states have done to avoid unpopular sales-tax hikes is to cut spending. Tharpe argues that would rob the state of future growth by harming education and transportation.

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