Income Tax Cap Referendum, if Passed, Takes Progressivity Off Table
With additional reporting by Matthew Charles Cardinale
(APN) ATLANTA — This November 2014, Georgians will have a chance to vote on a Constitutional Amendment ballot referendum that will cap the income tax at its current level of 6 percent.
The referendum title is simple enough: “To prohibit an increase in the state income tax rate effect January 1, 2015 (Senate Resolution 415).”
The question that will be put to voters is: “Shall the Constitution of Georgia be amended to prohibit the General Assembly from increasing the maximum state income tax rate?”
While the idea of capping the income tax may sound like a good idea at the surface (who wouldn’t want to keep their income tax from increasing?), there are some long term disadvantages for a state that hasn’t fundamentally changed its tax code since the 1930’s.
According to Alan Essig, Executive Director of the Georgia Budget & Policy Institute (GBPI), the brackets in Georgia’s income tax code are the same as they were when enacted in the 1930’s, because anyone making more than 10,000 dollars per year pays six percent.
In the 1930s, there were more families making 7,000 per year, for example, who paid a lower tax rate. Today, our highest bracket, six percent, is the one assessed to most Georgia households.
“The income tax itself, when implemented in the 1930s, was considered progressive; now, it’s basically flat,” Essig told APN.
“Even a flat tax is more progressive than a sales tax. It [the income tax] is the only slightly progressive part of the tax code because it’s more progressive than a regressive tax,” Essig said.
SR 415 was introduced by State Sen. David Shafer (R-Duluth), and was supported by a vast majority of Republicans as well as some Democrats in the Legislature.
“This could hamstring future attempts from using the income tax for needed government programs,” State Sen. Curt Thompson (D-Tucker) told Atlanta Progressive News.
Despite this, Sen. Thompson, is one of several Democrats who voted for the bill during the Legislative Session earlier this year, according to the General Assembly’s website.
“Attempting to tax higher incomes, as it’s done in other states, is not feasible for Georgia. We simply don’t have enough billionaires. The benefit is not there,” Thompson said.
What Thompson is referring to is the political reality of Georgia being currently a red state.
Because Georgia does not have as many millionaires or billionaires than, say, the State of New York, changing the brackets so that there would be an income tax rate higher than six percent on people making more than one million dollars per year would not yield much of a revenue boost, Essig told APN.
“You could increase the top rate of those making over 200,000 – you can make a significant amount of money doing that,” Essig said, although such a tax code change is a harder sell in Georgia. “It’s a political problem, not a revenue problem.”
But Essig said voters in the future may want wealthier taxpayers to pay a higher rate. “It could be for more than revenue, it could be for equity… but that takes the option off the table,” he said.
Because all Georgians are currently paying six percent or less, capping the tax rate at six percent would have no immediate budget impact, but would limit policymakers’ options in the future.
“It does nothing – that’s the difficulty in talking about it and arguing against it – it doesn’t have immediate impact,” Essig said.
“It ties the hands of future General Assemblies. Because of that, if at any point, if there’s any changes to increase revenues, the changes are gonna be on the more sales tax end. It takes the option of progressivity out of future tax reform efforts,” Essig said.
“This is going to be hard to beat. It’s polling well and will likely pass. We’ll be educating folks about both sides of the issues,” Essig said, noting that GBPI is a nonprofit organization and cannot, by law, take a position once the question is on the ballot.
“The caps would hinder lawmakers’ ability to fully fund education and other public services, especially in the event of an emergency such as a natural disaster, or in response to a deep economic downturn,” Wesley Tharpe, Policy Analyst of GBPI, wrote in an analysis February 2014.
Even more services and programs would be on the chopping block, to offset the lack of revenue from an ever-changing tax base.
As a result, property taxes could increase, homestead exemptions could be eliminated, and most assuredly, sales taxes would increase. This increase in the sales tax, according to the GPBI, is almost certain.
The increase of taxation for goods and services has and will continue to affect the largest and poorest populations in Georgia, creating a Depression-like era, tantamount to the state’s out-dated tax code.