Gov. Nathan Deal is by nature a cautious man, and that innate caution has served him well. In fact, most of his troubles in his financial affairs and political life have come when he abandoned that caution.
Last week, that trait was again on display when Deal warned state legislators against making large-scale changes in the state’s tax structure. With the state treasury finally showing signs of stability, “We need to ensure that we’re on solid footing in order to sustain the budgets that we have continued to pass and will pass,” he told Walter Jones of the Morris News Service.
In particular, Deal stressed the fact that any tinkering with the tax structure may cause bond-rating agencies to reconsider the coveted AAA bond rating they give Georgia, which allows it to to pay low interest on its debt. And he’s right. The impact on bond ratings is a legitimate concern, and states such as Kansas that have tried to revamp their tax structures as part of some ideological experiment have seen their bond ratings downgraded.
However, there’s an even more important reason to be wary of the changes being proposed by Republican legislators. If enacted into law, they would significantly increase taxes on lower-income and middle-income Georgians while conferring a significant tax break on corporations and wealthy individuals.
Put another way, those proposals would redistribute wealth, taking money out of the pockets of low- and middle-income Georgians and handing it to the already wealthy. And though some may try to cloud the issue, there’s no real debate about that fact.
All of the proposals now being considered take the same general form. They would cut the state income tax, then try to replace the lost revenue by increasing the state sales tax and also applying it to food. And while liberal and conservative economists don’t agree on a lot, they do agree that raising the sales tax will hit low- and middle-income households disproportionately harder, while a reduction in the income tax will benefit mainly upper-income households.
Conservative economists argue that’s a desirable outcome that will produce more jobs — the old trickle-down theory — while liberal economists think it’s unfair and almost never produces the growth that is promised.
Two other points:
- As the chart above illustrates, Georgia’s tax system is already highly regressive, meaning that it already imposes a much-higher tax rate on low- and middle-income households than it does on the wealthy. On average, the wealthy in Georgia pay 5 percent of their income to state and local governments. On average, the rest of Georgia pays 10 percent. The proposed shifts in the tax structure would make that inequity even worse.
- Georgia’s lower-income and middle-income households are losing ground even without having higher taxes added to their burden. Fifteen years ago, median household income in Georgia was above the national average. In the most recent data, it is $4,400 below the national average. Adjusted for inflation, median household income in Georgia has declined by more than $8,000 since 2008. The proposed tax changes would hurt the buying power of those already attempting to deal with that loss of buying power.
In short, the Georgia GOP would be trying to tell people already losing ground that their tax burden will go up, but it will be for their own good. In this political environment, that’s a tough sell.