By Dr. Scott Beaulier
Layoffs. Crumbling budgets. Foreclosures. Rising unemployment. Crisis. These words pepper the headlines of newspapers across the nation. And unfortunately, Georgia too. Today, our state faces a financial crossroads: either we continue down the same worn path of fiscal mismanagement or we pave a new road of fiscal sanity for Georgia.
By law, Georgia’s General Assembly must balance its budget every year. To do so, there are two options: tax more or cut spending. Amidst the economic crisis, state revenues have declined as personal and corporate bottom lines shriveled. Yet, despite having fewer resources, government spending in Georgia has continued to grow. While the state’s administration has boasted fiscal responsibility, the size of government in the Peach State has swelled by 70 percent on Governor Sonny Perdue’s watch. In one decade, Georgia’s annual state expenditures have more than doubled. Is it any mystery why we have a budget crisis today?
Excessive spending has left Georgia policy makers with a $1.4 billion gap in the budget. Closing the gap will involve choices that will impact generations of Georgians to come. Many of the ideas regarding how to raise revenue involve tax increases on everything from hospital beds to cigarettes to capital gains. Additionally, the Georgia Assembly is fine-tuning a regional, special-purpose sales tax option that will make it easy to levy additional sales taxes on rural counties that tend to have lower per capita incomes.
Sadly, many of the proposed taxes target the pocketbooks of Georgia’s poorest families – many of whom are already struggling with the burden of unemployment. The potential cigarette tax, for example, would add a one dollar levy on every pack – a burden that would disproportionately affect lower-income individuals who have a higher portion of smokers than other demographic groups. For example, more than one-third (34 percent) of those earning less than $12,000 a year are smokers, according to a 2009 Gallup poll. Furthermore, this targeted population also faces an unemployment rate of 30.8 percent, according to data from February 2010.
As such, it is the poor and the unemployed being forced to surrender additional funding to the state government in order for the state government to keep on spending. This shell game seems counter-productive, and experts argue it is. Increasing taxes on the poor – or anyone else for that matter – during a recession is a tried and failed strategy that stifles growth and will perpetuate Georgia’s already high rates of unemployment.
Furthermore, tax rates tend to make residents and businesses “vote with their feet.” People run away from high-tax states like California and Michigan (and potentially Georgia) towards states like Colorado and Tennessee where taxes are lower.
To maintain our competitive business environment and to help the poor and unemployed through this recession Peach State policymakers must do more with less. They must avoid the introduction of new taxes, make significant cuts to the size and scope of the government, and privatize public services, thereby allowing market forces to work properly and effectively. Such were the recommendations Mark Adams and I offered in our new study, “Increasing Taxes during a Recession: The Wrong Medicine for Georgia.” Our research found the regressive tax policies currently proposed in Georgia only dig the state further into debt while prolonging the effects of the budgetary crisis.
Legislators, as well as Governor Perdue are running out of time to solve this crisis; however, the policies our public servants enact will last for generations to come in Georgia. The bottom line is this: if Georgia is to emerge successfully from this Great Recession, the weight of taxes, regulations, and government spending must be lifted from the shoulders of citizens, preserving Georgia’s budget today and tomorrow.
Beaulier is the BB&T Distinguished Professor of Capitalism and Department Chair of Economics in the Stetson School of Business and Economics at Mercer University. He is also a Distinguished Fellow at the Laffer Center for Global Economic Growth, which sponsored the study, “Increasing Taxes during a Recession: The Wrong Medicine for Georgia.”