Earlier this year, I introduced the More Take Home Pay Act (MTHPA) to reduce the state income tax rates and diversify the state’s revenues towards more of a consumption tax. The goal has always been to address the long overdue need for common sense restructuring of the state tax code and allow Georgia families to keep more of their own money. Although Georgia is among the top five states in the country to do business, we must always strive to become even better. Particularly since we have the 2nd highest income tax rates among our border states, and as we were recently ranked by the Tax Foundation as having the 8th worst income tax climate.
Some have expressed concern over such a large initiative. I stand with them in total agreement that all efforts to change Georgia’s tax structure must be done in a way that will both protect our coveted AAA bond rating and ensure stable revenues for funding vital state programs, including education and health care. As such, I continue to believe it is important to remain transparent and dispel the most common myths as related to the bill.
Some of these myths include:
- The MTHPA eliminates the income tax. Not true. The bill incrementally reduces the personal income tax rate from 6% to 4% and the state corporate tax rate from 6% to 5% over three years.
- The MTHPA significantly cuts taxes. This also is simply not true. We are managing the revenue estimates to be revenue neutral, or a slight tax cut. Other states, like Kansas, have suffered from reducing their tax rate without considering the need to stabilize and replace revenue. By reducing the income tax rate and transitioning to more of a consumption tax, Georgia will maintain its ability to fund critical state obligations. Keep in mind that Georgia was recently ranked by the Tax Foundation as having the 49th lowest state tax burden.
- The MTHPA will damage Georgia’s AAA bond rating. The AAA bond rating is a major factor to low interest expense on our bonds as well as economic development. As a finance professional, I fully understand the impact of the AAA bond rating. Georgia has approximately $9.5 billion of outstanding bonds, and if our bond rating dropped to AA, for example, the interest rate paid on 20-year bonds could increase by 0.25%, or $23 mil of higher interest expense. According to economists, the bond rating analysts look for diversity and flexibility in our state’s revenues, and the MTHPA improves both. It improves diversification by placing more reliance on the consumption tax (over 50% of our revenues come from income tax), and also flexibility (S&P noted caution in its recent rating report, as Georgia passed a constitutional cap at the current 6% income tax rate).
- Income taxes are a more stable source of revenue. By studying over 12 years of state revenue to date, we have determined that our consumption tax is as reliable as income tax, as compared to state GDP. In addition, this consistency has been achieved even before addressing the loopholes in the current consumption tax laws.
- The MTHPA “pays for” an income tax cut with taxes on satellite, digital goods and higher cigarette taxes. The additional state revenues from these items would generate less than $400 million annually, where it takes a whopping $2 billion or so to reduce the state income tax by just 1%. The provisions addressing these taxes are for parity in the free market and average rates among our border states.
Finally, the More Take Home Pay Act does not tax certain purchases suggested in previous proposals, such as Girl Scout cookies, Boy Scout popcorn, lemonade stands, etc. It continues to exempt haircuts, nail care, dry cleaning or any other personal care services, in addition to doctors, lawyers, accountants, architects, engineers or any other professional services.
I sincerely hope that dispelling some of these myths on the More Take Home Pay Act is helpful. This legislation is not an elimination of the state income tax, or a multi-billion dollar tax cut (like Kansas), or a transition towards unstable tax revenues. It is, however, a major step towards lowering our state income tax rates and diversifying towards more of a consumption tax.
It is your money, not the government’s. You keep more of it, and you and your family decide how to spend it. More Take Home Pay for Georgians.
Representative John Carson represents the citizens of District 46, which includes portions of Cherokee and Cobb counties. He was elected into the House of Representatives in 2011, and currently serves as the Vice Chairman on the Energy, Utilities, & Telecommunications and Intragovernmental Coordination committees, and Secretary on the Insurance Committee. He also serves on the Transportation and Ways & Means committees.
###