Speaker's tax plan drawing host of critics

ATLANTA - It wasn't exactly the Lion's Den of the Old Testament that Georgia House Speaker Glenn Richardson walked into last week.

But the audience of county commissioners the Hiram Republican addressed was less than enthusiastic over the advertised topic of his luncheon speech: his plan to abolish property taxes and replace the revenue with an expanded sales tax.

While property taxes are levied, collected and spent by local governments and school systems, the 4-percent sales tax goes directly to the state.

"I feel hemmed in here," Richardson joked as he took the podium in front of about 350 members of the Association County Commissioners of Georgia. "I'm going to have to get the state patrol, or you're going to have to not throw things at me."

As it turned out, the polite reception the county folks gave the speaker was nothing compared to the sticks and stones hurled at his proposal a few hours later up the highway in Rome.

That city's mayor, Ronald Wallace, compared what Richardson wants to do to Marxism, a plot by the state to centralize taxation and redistribute the money to local communities as it sees fit.

"Who do you trust to control how you want your money spent?" he asked an audience of about 75 at an information session sponsored by groups opposed to the plan.

"Should legislators in Augusta and Savannah tell us what types of services we should provide and at what level?"

Obstacles aplenty

Wallace's diatribe is just a sampling of the hurdles Richardson faces in shepherding a major tax reform past lawmakers during this winter's General Assembly session and on to the voters.

Lined up against the plan is an alphabet soup of organizations carrying major clout under the Gold Dome, from the ACCG and Georgia Municipal Association to the Georgia Association of Educators and the AARP.

If the speaker somehow finds a way to neutralize those groups' influence, his GREAT Plan (Georgia's Repeal of Every Ad Valorem Tax) would need a two-thirds majority to pass the House.

While Senate Republican leaders are vowing not to block the legislation if and when it reaches them, they have expressed serious reservations about it, as has GOP Gov. Sonny Perdue.

Essentially, the GREAT Plan would do away with all taxes on commercial and residential property, including the car tax.

To make up the approximately $9 billion a year in lost revenue, Richardson proposes expanding the sales tax by moving beyond taxing just goods to taxing most services, and by eliminating most of the current exemptions, including those on groceries and prescription drugs.

He argues that it's past time to abandon property taxes, which have become a relic of the past.

"Up until recently, we were an agricultural society, and nobody had any money until their crops came in," he said.

"This is the 21st century. ... Not one person can justify to me why in 2007 we choose to tax land, buildings and houses."

Beyond such philosophical considerations, Richardson said property taxes in Georgia in recent years have been rising faster than personal income.

He said frequent reassessments in rapidly growing parts of the state threaten to force longtime residents to sell their homes because they can't afford the taxes.

"Property taxes are rising faster than people's ability to pay them," he said. "That's why citizens are complaining."

Less burdensome tax

On the other hand, the speaker said, sales taxes are easier to swallow because consumers pay them in small increments.

Also, unlike with property taxes, taxpayers can control how much they pay by how much they spend, he said.

"People are tired of paying all taxes," he said. "But if they have to pay a tax, they'd rather pay one they can control, not one they can't control."

But the GREAT Plan's opponents use the same argument that always has been leveled against sales taxes: They're the most regressive form of taxation.

While it's true that consumers choose how much they spend, everyone has to buy certain basic necessities. Since lower-income individuals and families must spend a larger percentage of their incomes on those basics, any expansion of the sales tax would hit them harder than more affluent taxpayers.

"The elderly and poor would unfairly suffer," said Kathy Floyd, a lobbyist with AARP Georgia.

Allen Essig, executive director of the Georgia Budget and Policy Institute, said throwing out the property tax also would knock out one leg of the "three-legged stool" that makes for sound tax policy.

He said states need property, sales and income taxes to weather economic downturns, the same way individual investors need diverse portfolios.

"You don't want all your eggs in one basket," said Essig, who organized the statewide series of public meetings on the GREAT Plan that stopped in Rome last week. "You want to be able to shelter yourself in case one goes down."

Then, there's the local control issue brought up by Rome's mayor.

Allocation worries

The GREAT Plan calls for the state to collect the revenues from the expanded sales tax and redistribute the money to local governments and school systems based on a formula yet to be developed.

Richardson said he'd like to see the formula used to help cities, counties and school districts with inadequate service delivery and educational achievement pull even with statewide averages.

That has officials in more prosperous counties worried that they could become "donor" counties propping up their smaller, less affluent cousins, just as Georgia contributes more in gasoline taxes to Washington than it gets back in federal transportation funding.

"Counties with fewer than 2,000 people would benefit under this formula," said Houston County Commissioner Tom McMichael, president of the ACCG.

Richardson has responded to criticism of the GREAT Plan with several proposals addressing some of the objections.

He's offering to include a tax credit to cover what Georgians living below the poverty level spend on groceries and prescriptions.

He said the legislation also likely will exempt from sales taxes most spending on health care.

As for complaints from local officials about losing control of taxing decisions, Richardson said they still would be allowed to put special purpose local option sales tax proposals before their voters, although they would need 60 percent support to pass rather than a simple majority.

Unanswered questions

But such adjustments to Richardson's original proposal also are drawing criticism because they foster uncertainty.

"It's still a moving target," said Senate President Pro Tempore Eric Johnson, R-Savannah.

Johnson said many Senate Republicans agree philosophically with Richardson's desire to rely more on a consumption tax and will give his bill serious consideration if it gets through the House.

But there's also an internal debate among Republicans about what form of tax relief would be best.

Lt. Gov. Casey Cagle said he leans more toward abolishing the state income tax than the property tax. Legislation to do just that is pending in the Senate.

"Most economists would say if you remove income tax and do a consumption tax, that would be an economic impact for the state," Cagle said. "But to do it with the property tax, I'm not sure you're going to get the economic bump."

Even the GREAT Plan's staunchest critics agree it's a bold proposal that represents major change.

All 50 states have a property tax. Where opponents see risk in Georgia becoming the first to abolish it, Richardson sees an opportunity to make Georgia a magnet for people tired of paying taxes.

"Let's lead the United States," he told the county commissioners last week. "We'll have to build fences to keep people out of the state of Georgia."