Last week we began a review of Georgia’s income tax. It appears there is a bidding war breaking out among GOP candidates for governor as to who can cut the income tax the most. We’re continuing to look at the issue this week, in hopes to help you distinguish between realistic fiscal goals and the folly of empty campaign rhetoric.
Georgia’s income tax rate is 6 percent. Our neighbor North Carolina has recently cut its top rate to 5.49 percent. Other neighboring states Tennessee and Florida have no state income tax.
North Carolina is the state most similar to Georgia. Its population is within a rounding error’s difference. Its demographic makeup is also about the same. The major difference between the states is that they have Charlotte and a relatively dispersed population. We concentrate half of all Georgians in metro Atlanta. The folks at the Department of Economic Development will also tell you that they’re usually our closest competitor for targeted prospects.
While North Carolina’s structure deserves closer inspection, the empty rhetoric part of this debate starts at “Tennessee and Florida don’t have a state income tax, so why should we?” There are a couple of reasons.
There are more taxes that go into making a state competitive than income taxes. There are also property taxes, sales taxes, and numerous other fees and tolls that fill state coffers.
Georgia’s current system is heavily based on the income tax. This isn’t because Georgians got up one morning and said “Hey, let’s pick the highest income tax rate in the Southeast.” It’s actually because over time, Georgia’s legislature has cut other taxes — some significantly.
Georgia is now largely out of the property tax business. Local governments still tax property, but the state portion of ad valorem taxes — including the tax on cars — is all but gone.
Similarly, Georgia does not tax groceries as part of the sales tax mix. That’s a significant portion of a household’s spending that evades the tax man, especially for lower-income households.
So for every Georgian wishing we could be like Tennessee on income tax, there’s probably a Floridian wishing he or she could have Georgia’s property tax structure, or a Tennessean wanting to know why they have to pay taxes on groceries to feed the family when Georgia families don’t have to.
When looking at competitiveness between states — remembering that the chief argument to lower or eliminate the income tax is on this basis — the total tax burden must be compared. Competitiveness is more than just one tax rate.
When looking at the total tax burden for each Southeastern state, Georgia is next to last in terms of taxation and spending per person as of 2015. Only Florida is lower than Georgia, and Florida is different in ways that Georgia will not match any time soon.
Florida’s economy is built around tourism. It has an almost unlimited, heavily developed coastline that draws summer tourists and winter snowbirds alike. Many of these folks declare residency but don’t use services year round, thus decreasing the per capita burden they impose on the state.
Florida’s population also skews older, which means significantly lower education spending than other southeastern states. Georgia, you should know, spends more than half of its budget on education.
Among the remaining Southeastern states, Georgia stands tall. In FY 2015, Georgia’s total expenditures per person came to $4,302. That covers education, transportation, public safety, Medicaid, and a host of other services provided by the state. Tennessee spent $4,688 per person that same year, or 9% more per person to deliver the same services. The big spender in the southeast is Arkansas, spending 78 percent more per person than Georgia.
Our closest competitor, North Carolina? They are also closest in state spending, with just a 2 percent higher spending rate in 2015.
The takeaway here is that Georgia’s spending isn’t out of control, nor is it out of line. More importantly, any tax cut must be made up the exact same year with a spending cut as Georgia must balance its budget every year.
Thus, anyone promoting a plan to eliminate Georgia’s income tax must come up with service cuts or replacement taxes to pay for them. Given that Georgia is currently spending less per person than our neighboring states, the likelihood would be that cuts in income taxes will come from other new taxes, which is more of a form of window dressing than it is in substantive “cuts.”
Charlie Harper, executive director of PolicyBEST, a public policy think tank, is also the publisher of GeorgiaPol.com, a website dedicated to state & local politics of Georgia.