Such a change would bring many benefits, if it could be pulled off. But the study Mark Rider, associate professor of economics, produced for the Fiscal Research Center at GSU's Andrew Young School of Policy Studies says it's nearly impossible for Georgia to do it.
Rider quotes other studies that estimate switching the entire U.S. tax system could boost the overall economic output by 9 percent. That's because corporate profits would no longer be double taxed - when the corporation earns them and then when the shareholder receives them - and would no longer be at a tax disadvantage with corporations in other countries.
That would essentially increase the rate of return on stock, bonds and other aspects of business ownership, which should attract investment funds from abroad, money that can create jobs.
Rider's study lists other benefits as well.
For one thing, the government could have a steady revenue stream that would reduce the temptation to raise taxes in a recession, cut services or lay off government workers. That's because consumption amounts to a steady 60 percent of the economy when food and medicine are taxed, so the actual rate wouldn't have to be high.
Consumers' money would go further, too, he argues, since there would be no tax cascading as there is on the current retail sales tax. That's where a product gets taxed at several steps in its production and the end price has to reflect each tax.
Ending tax cascading would also result in wages rising faster than inflation, he argues. Plus, it would reduce the cost of compliance because there would be no need for hiring accountants to complete income-tax forms anymore.
He also addresses one of the major objections to a consumption tax from liberals. They consider such a tax harmful to those with low incomes because they have to spend a greater portion of their money on necessities than the rich.
Rider makes two points about that. First, he said refunds to the poor could give them everything they had paid in taxes. Second, if the rich spend money from either their savings or investment income, they'll be taxed, and so they would wind up paying more than the poor that way, too.
His paper sounds so far like a commercial for The Fair Tax supported by GOP presidential hopeful Herman Cain and the majority of the tea party.
That might be surprising coming from the outfit that frustrated legislators during this year's session. Lawmakers considering sweeping tax reform hired GSU's Fiscal Research Center to analyze various scenarios, but they finally called it quits after they concluded the professors were too philosophically opposed to a consumption tax to objectively quantify any benefits.
Some of the legislative leaders are talking about hiring another university for the job next session.
In that light, Rider's paper might seem out of place. But hold on.
He does see a couple of major hurdles to the state switching to a consumption tax besides the political challenges, such as the expansion of taxes to all services and imposing it on governments and nonprofits.
One reality check is to scale back the size of the projected benefits. It's inaccurate to use estimates for a national consumption tax, he said, because state taxes aren't high enough to figure into most corporate decisions about capital.
The top federal corporate tax rate is 35 percent while Georgia's is just 6 percent, or about 3.9 percent after considering state taxes are deductible from federal taxable income. Eliminating the smaller of the taxes isn't likely to spur Georgia executives toward capital expansions, but it could attract capital from other U.S. companies.
Walter Jones has been covering state politics since 1998.
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