By: Randy Evans
With Georgia’s 2013 General Assembly winding up, Georgians can be thankful that the legislature has again guided Georgia through some tough economic times. Balancing budgets (as Georgia must do under its Constitution) during tough economic times is no easy task. This is especially true as unfunded federal mandates take full effect, including no less than the Affordable Care Act.
Notably, Georgia’s General Assembly and Gov. Nathan Deal have balanced Georgia’s budget (again) without raising Georgia’s income taxes or the state’s sales tax. Instead, Georgia’s elected officials accomplished this feat by cutting expenses and managing effectively Georgia’s revenues.
If indeed “necessity is the mother of invention,” then it might just be that the federal government could also benefit from some real necessity as Georgia has under the constraint of its Constitution. Of course, the self-imposed sequestration might just be that necessity. Yet, by all accounts, rising deficits and federal debt remain on the fiscal horizon with no end in sight. These deficits and debt bring with them a myriad of economic challenges for the U.S. economy and for states.
The result is that states like Georgia are left to find their own way in breaking out of the economic debt harness that throttles the engine of America’s economy. The challenges have been so great that just making ends meet is a critical step to averting fiscal collapse. Georgia has done better. Georgia’s bond rating and fiscal stature have remained strong even amidst the challenges from the economic slowdown and steady addition of unfunded federal mandates.
Indeed, in contrast to the growing crises in states like California and Illinois that have been teetering on the edge of bankruptcy, Georgia has done well. Compared to governments that have lost the battle and filed for bankruptcy, staying afloat has undoubtedly been a win for Georgians.
But, there does come a point when aiming for mere financial survival from year to year is not enough. Instead, the time has come for long-term solutions aimed at giving Georgia a sustainable competitive edge. Bold solutions do exist.
Seven states have taken such a step by completely eliminating the state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Two states have eliminated all income taxes except taxes on dividends and interest: Tennessee and New Hampshire.
Currently, governors in two other states have proposals to eliminate their state income taxes: Kansas (Gov. Sam Brownback) and Nebraska (Gov. Dave Heineman). In Louisiana, Gov. Bobby Jindal has proposed eliminating personal and corporate income taxes.
Other governors have proposals that take big steps toward reducing their income taxes. These include Gov. Scott Walker (Wisconsin) with an income tax cut; Gov. Mary Fallin (Oklahoma) cutting the top bracket of the income tax; Gov. Pat McCrory (North Carolina) cutting the income tax; Gov. Nikki Haley (South Carolina) eliminating the 6 percent tax bracket; Gov. John Kasich (Ohio) reducing the income tax; and Gov. Mike Pence (Indiana) cutting personal income taxes by 10 percent.
All of these states and governors recognize that managing crisis is not a long-term solution. This is especially true when states directly to the north (Tennessee) and south (Florida) have already eliminated their income taxes and other southern states (like South Carolina, North Carolina, Louisiana and Texas) have already eliminated their income taxes or are moving in that direction.
Fortunately, while the economic uncertainties of the last few years have precluded immediate steps toward eliminating Georgia’s income tax, Georgia too has started the process. Senate President Pro Tempore David Shafer, R-Duluth, has sponsored two constitutional amendments that move Georgia one step closer to eliminating Georgia’s income tax. In his words, “this is to start the shift from an income tax to a consumption tax.”
Senate Resolution 415 prevents the state from raising the state income tax. Senate Resolution 412 requires that any increase in the state sales tax be offset by a reduction in the income tax. Both resolutions can be passed in the 2014 General Assembly Session and still make the 2014 ballot.
Georgia has two possible futures. It can follow the pack that rests on deteriorating laurels with their future largely dependent on the ebbs and flows of economies beyond their control. Or, Georgia can follow the lead of forward-looking states focused on laying the foundation for their own futures. Texas, a state with no income tax, proved that no one state has to suffer the fate of every other state. As confirmed by the Dallas Federal Reserve, Texas entered the recession late and exited it early. Indeed, of the 496,000 jobs added to the national economy between the fall of 2009 and the spring of 2011, more than half came from Texas. When the national mortgage delinquency rate was 8.78 percent, Texas’ rate was 5.78 percent. The list goes on and on.
Look for Georgia to follow. It may take some time, but the sooner started, the sooner done.