Charlie Harper: When Budget Facts Meet Campaign Rhetoric
Tuesday, August 8th, 2017
What are you going to believe? The facts, or what you know to be true?
A bidding war seems to be breaking out among some of the Republican candidates for Governor with respect to who can cut state income taxes the most. Cutting taxes, is of course, a core mantra within the GOP. To hear some of the talk, however, one might think Georgia has been run by Bernie Sanders and Elizabeth Warren for the past decade instead of…the four announced Republican candidates for Governor – all currently elected to serve at the state capitol.
Yes, Georgia’s state income tax is among the highest in the Southeast. Our closest competitor and most similar state, North Carolina, has recently cut their state income tax rate to 5.49%. Georgia’s top rate is 6%.
There is no evidence that North Carolina has achieved a competitive advantage for this change. Quite the contrary. After North Carolina eliminated its film tax credit, they lost most of their movie and TV industry.
Georgia’s is thriving, creating Georgia jobs. Last year, 85% of the crews working on Georgia film productions were Georgians, with an average salary of $84,000 per year. In the high wage tech industry, Georgia is also seeing firms that would once have been a lock for the research triangle find themselves with new peach state roots.
Is a cut of Georgia’s income tax rate worthy of debate? Sure. Matching North Carolina’s tax rate would require either cutting the state budget by a bit over $1.6 billion, or replacing that revenue with other taxes. It would be nice to see the need for these adjustments documented with something other than the need for bragging rights, however.
Cascading further into the bidding war, we also have talk that Georgia needs to get rid of its income tax altogether. This is relatively impossible, and any candidate suggesting this should happen either doesn’t understand the state’s revenue structure, or more likely, hopes you don’t.
There are two main facts that you need to know about this: Georgia gets roughly half of its tax revenue every year from the state income tax. Also, Georgia by law must balance its budget every year.
Most of these “plans” suggest that the income tax could be replaced by an increase in sales taxes. They can’t.
Georgia takes in approximately one quarter of state revenues currently from sales taxes. That’s roughly half the amount we take in from income taxes. Without broadening the sales tax base, that would mean to be revenue neutral Georgia’s state sales tax rate would have to go from 4% to 12%. Adding in local sales taxes, residents would see the average sales tax rate at about 15%, with some as high as 16.9%. This would not make Georgia more competitive.
Of course, we could always broaden the base to keep those rates down. That would mean adding the tax back on groceries, which is politically problematic in an increasingly populist political environment. We could also tax services, which creates new competitiveness problems for larger firms that have regional or national headquarters in Georgia.
Then there’s the spending side of the ledger. Some point to Georgia’s budget growth from $17 billion to $25 Billion as evidence that spending is out of control. Except, that budget growth has covered a decade and a ten percent population growth. When adjusted for inflation and growth, Georgia’s FY 2017 budget was 9% lower than the peak budget in FY 2008 before the great recession.
Most candidates would want to tout Georgia’s fiscal success and restraint over the past decade. But they know that their base thinks they tax and spend too much. They have the hopeless task of trying to run on their record while trying to run against it.
The problem with this can be seen currently in Washington, where many Republican Senators are trying to explain why they can’t just repeal Obamacare after 7 years of campaigning and fundraising on that very promise. Promising to eliminate a tax that won’t be eliminated is a stunt to win a current election that may cost Republicans a future one over undelivered promises.
There’s still time for the major candidates to self-correct and run on facts. As such, we’ll spend the next few weeks here doing a deep dive into Georgia’s fiscal situation. It’s important for you to know the facts, and for the candidates to know that you know them.
Otherwise, we’re going to have nine months plus a runoff of Republican candidates running against their own record. Then, they’ll have a few months running against Democrats who, conveniently, will also be running against the GOP’s record.
Fact matter. November is coming.
Charlie Harper is the publisher of GeorgiaPol.com and the Executive Director of PolicyBEST, which focuses on policy issues of Business Climate, Education, Science & Medicine, and Transportation.