Georgia’s failed tax reform effort holds a warning for North Carolina
This is the first of a four-part blog series presenting voices from other states that have unsuccessfully pursued versions of comprehensive tax “reform.”
Commentary provided by Alan Essig, Executive Director of the Georgia Budget and Policy Institute in Atlanta, GA.
As North Carolina considers major tax reform, it’s useful to take a look at a similar effort in Georgia a few years ago, because what started out as a plan to overhaul the state’s tax system in a responsible way that preserved important state investments quickly devolved into a proposal that put ideology and politics above the welfare of Georgians.
The core of Georgia’s problem was similar to what you are now seeing in North Carolina: the pursuit of drastic income tax cuts paired with a failure to replace this with another revenue source makes it impossible for a state to provide the services that people and businesses depend on every day, like roads, schools, and safe communities. Georgia wisely chose to reject such a proposal in 2011, just as North Carolina should this year.
In 2010, the Georgia General Assembly established a committee made up of the Governor and a variety of economists and business leaders that was charged with creating a comprehensive tax reform proposal. Their guiding principles were that the state should rely less on income taxes for revenue and more heavily on sales and consumption taxes, while maintaining the same amount of revenue so the state would not have to slash funding for schools and other vital services.
The committee recommended that the state tax all personal and corporate income at four percent and significantly cut taxes for businesses and the wealthy – similar to what lawmakers are now proposing in North Carolina. To help pay for the reduction of income tax rates, sales tax would have been paid on things previously exempted and some tax credits were targeted to be eliminated. But when the 2011 legislative session started, lobbyists in the Capitol squelched the portions of the bill that ended the special interest tax breaks for their clients, which meant that there now was not enough revenue to avoid massive cuts to services. It was not long before the entire proposal went up in flames.
North Carolina is taking a slightly different route to changing its tax code (it has not created a committee as Georgia did), but the Tar Heel State is certainly heading in the same direction. And, like their peers in Georgia, if legislators elect to focus only on cutting taxes for the wealthy and big corporations, the end result will be a bill that attempts to defy both math and logic. Thankfully, Georgia quickly realized how damaging this approach is for both people and businesses, and I hope North Carolina does too.