There’s been a lot of talk in Atlanta recently about a proposal that would radically change the way taxes are collected in Georgia.
Currently, Georgia uses a three-pronged approach to raise the money it uses to pay for public services: income tax, property tax, and sales tax. Under this new, risky proposal, property taxes would be eliminated in favor of expanding the sales tax to cover some goods and services currently exempted.
What would be the effect of this shift in the way taxes are collected? Well, it’s hard to say exactly, and that’s part of the problem.
It is thought that the elimination of the property tax would cost about $8.3 billion in revenue. Proponents of the change say that the money made from expanding the sales tax would more than make up for this loss of revenue.
But a recent study conducted by Georgia State University estimated that Georgia would only collect between $4 billion and $6.5 billion from such a sales tax expansion, depending on the exemptions and services included. This would result in a budget deficit that would require either deep cuts in services or a major tax increase.
Just as important as whether the money generated from the expanded sales tax would be enough to cover the loss of revenue from property taxes, is whether or not the same amount would be available year after year.
Although no one enjoys paying property taxes, no state has yet eliminated it.
A major reason for this is financial stability. Property taxes tend to be steady. Unlike a sales tax, which can radically alter in revenue depending on the economy and consumer spending, property taxes provide a stable source of funding for public services.
If there is an economic downturn in Georgia under this new proposal, money for key services - things like police, health care, and schools could suddenly be faced with a budget crisis just when the people need the services most.
Another concern with this new proposal is that the power to budget and tax would now be concentrated in Atlanta, rather than in the local communities.
Under this plan, the state of Georgia could replace the cities, counties, and school districts as the primary decision maker of which projects would get funded (and by how much).
This will hurt the city, county, or school district that wants to plan for its future. Let’s say a community wanted to expand its water treatment facilities with the hope of attracting new businesses.
Rather than being able to decide to collect the revenue locally to move forward with the project, the local government could be forced to go to the state to ask for the necessary funds - with no guarantee that the State is going to listen.
This concentration of power in Atlanta makes it more difficult for local governments to respond to the needs of its community as they change over time.
This is not to say that there are not problems with the way that taxes are collected in Georgia. But there are steps we can take to improve the system rather than experiment with an unproven method. Tax reform measures including the circuit breaker and the homestead exemption can help ease the tax burden on property owners.
The income tax brackets can be expanded and revised. And the sales tax can be expanded to include some services that are currently exempt. However, now is not the time to completely destroy a tax system in need of reform in order to implement a scheme that is risky and untried. The consequences of failure are too severe for us to rush into the great unknown.
Sarah Beth Gehl is the deputy director of the Georgia Budget and Policy Institute, a nonprofit, nonpartisan organization engaged in research on the fiscal and economic health of the state.