February 19, 2010
Legislators Should Avoid Targeted Tax Increases, Instead Implement Reforms Based on Sound Tax Policy
Washington, DC, February 19, 2010 -- Georgia lawmakers are mulling tax increases and gimmicks to plug a projected budget gap of more than $2 billion, but a new Tax Foundation report cautions against such tactics and urges tax reform that will stabilize revenue.
Eliminating targeted tax incentives, lowering the state corporate income tax rate and moving to a flat personal income tax rate would improve Georgia's tax system, according to the report, Tax Foundation Fiscal Fact, No. 212¸ "Georgia Should Respond to Recession with Tax Reform, Not Tax Gimmicks."
"Cutting useless incentives, broadening bases, and lowering rates will make Georgia more competitive, less distortionary, and save the state money," said Tax Foundation Policy Analyst Justin Higginbottom, who authored the report. "Georgia should focus on emerging from this recession with a better tax system."
In the Tax Foundation's 2010 State Business Tax Climate Index, which measures the business-friendliness of states' tax systems, Georgia ranks close to the middle nationally but worse than four of its five neighboring states. Georgia residents pay the 16th-highest state-local tax burden in the country, 9.9% of all income earned in the state, and higher than all of its neighbors.
Repealing tax incentives, which cost the state $265 million from 2004 to2006, would create a more attractive climate for all business and help fill the budget gap. One example is the state's film tax credit program, which fail to live up to their promises of job creation and economic growth at a real cost to the state.
While Georgia's corporate income tax rate of 6% is about average nationally and regionally, when combined with the federal tax rate of 35%, it's higher than almost any country in the world. Georgia also is one of 22 states that also have a tax on the net worth of business, called a net worth or capital stock tax. Georgia is one of only 10 states that have a tax on business' inventory. Lowering the corporate income tax rate and repealing the state's inventory and net worth tax would improve the state's tax climate.
Georgia's average state and local sales tax of about 7% is 17th-highest nationally and on par with its neighbors, but expanding the sales tax base to include groceries and services would allow for the overall rate to be lowered without sacrificing revenue. Lawmakers should avoid targeted tax hikes on products such as tobacco and other "sin taxes." A recent Tax Foundation report found that cigarette taxes burden low-income taxpayers and benefit high-income residents.
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
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Tax Foundation Fiscal Fact, No. 212¸ "Georgia Should Respond to Recession with Tax Reform, Not Tax Gimmicks," is available online at http://www.taxfoundation.org/publications/show/25871.html. To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.