Report: State can raise money and slash taxes at same time

ATLANTA - State lawmakers could raise more tax revenue and provide tax relief to most Georgians at the same time, according to a study released on Monday.

In a 13-page report, the Atlanta-based Georgia Budget and Policy Institute suggested two combinations of tax increases and tax cuts that would result in a net gain of $245 million a year for the state, yet roll back the tax burden for all but the richest 5 percent of taxpayers.

"These examples aren't set in stone,'' said Alan Essig, the think tank's executive director and a former legislative budget aide. "These are just two examples showing you can improve the fairness (of the tax system), ensure adequacy and actually give a tax cut to the great majority of Georgians.''

Tax reform has been on the front burner of the Republican-controlled General Assembly for the past couple of years.

Last summer, a legislative study committee held public hearings around the state on a proposal to do away with school property taxes and replace the lost revenue with a 3 percent increase in the state sales tax.

This month, another study committee began examining whether to eliminate or reduce Georgia's car tax.

Meanwhile, two other legislative panels are considering broader overhauls of state taxing and spending, including whether to tie Georgia's budget to population growth and inflation.

The report criticizes the state's current tax system as outmoded. At a time when consumers are buying an ever larger share of their purchases in services as opposed to tangible goods, Georgia was collecting sales taxes on only 36 of 168 services in 2004.

At the same time, according to the study, Georgia's income tax brackets haven't been updated since the 1930s, when $10,000 a year was considered a good income.

"We haven't followed examples of other states in using the income tax to balance the regressiveness of our other taxes,'' said

Sarah Beth Coffey, the report's co-author.

The study recommends cutting taxes on most Georgians by broadening the income tax brackets and reducing the sales tax rate.

To offset the revenue that would be lost by the two reforms, the report also suggests extending the sales tax to more services, raising the state's cigarette tax and reviving Georgia's estate tax, which was effectively abolished in 2001 by a change in federal law.

But Rep. Larry O'Neal, chairman of the House Comprehensive Tax Reform Study Committee, said legislative Republicans aren't likely to support anything that smacks of a tax increase.

O'Neal, R-Warner Robins, also chairman of the Ways and Means Committee, said the best tax reform the General Assembly did during the just completed term was last year's passage of a corporate income tax relief measure. He said the bill was good for Georgia's economy because it made the state more attractive to new and relocating businesses.

"A lot of what Mr. Essig and his crowd are recommending, I'd say, is on the liberal side of the policy agenda,'' O'Neal said. "Most of it appears to lead to a greater means-tested tax system.''

O'Neal, however, did concur with the report's recommendation that the state complete a "tax expenditure report,'' a full accounting of all sales tax exemptions offered in Georgia and their fiscal impact.

The study also endorsed reducing the car tax by 50 percent. However, it emphasized that the state should pick up the costs of the tax cut rather than impose it on local governments and schools and make up the lost revenue by broadening the sales tax base.