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Thursday, April 7, 2011 - 10:50am

Revised Plan Opens $220 Million Hole

A revised tax reform plan would create a large funding gap in the state budget next year. That’s according to a report by the state auditor. The plan would give nearly every Georgian a tax cut.

State legislators went back to the drawing board this week to rewrite a proposed tax reform plan. They wanted to correct a provision that would have raised taxes on middle income earners.

The new plan would cut taxes for virtually all Georgians. But it would result in a deficit that could range from $220 million to $235 million in 2012, according to the state auditor’s report.

Alan Essig with the nonprofit Georgia Budget and Policy Institute says the old plan, while far from perfect, was better than the new one.

“With all the flaws that it had, at least it helped strengthen the revenue base going forward," Essig said in an interview Thursday. "It was revenue-neutral immediately and it brought some additional revenue into the base so that in the out years, we might have had stronger revenue growth.”

Essig says without an infusion of new revenue, the state may have to cut more services. He says that would come on top of billions of dollars that have already been cut from education and other vital areas of funding.

State lawmakers spent much of the past few weeks squabbling over the tax plan. Namely, they've looked at whether it would give every Georgian a tax break. Essig notes they’ve paid much less attention to increasing state revenues.

Republican leaders formed a tax reform council last year to rewrite the tax code. But they largely rejected the council's suggestions, which included reinstating a grocery sales tax.

“When they first formed the tax reform council, one of the issues was how to deal with the immediate fiscal crisis and the structural deficit going forward," Essig said last week. "This [plan] doesn’t help with that. And that’s very problematic. This isn’t going to help the budget. This isn’t going help avoid future cuts to education, healthcare, infrastructure.”

The heart of the GOP tax plan would reduce the state income tax by 1.5 percent. Republican leaders say the plan would help attract jobs. Rep. Mickey Channell of Greensboro said the current income tax rate is not spurring companies to hire or relocate here.

“This proposed reduction in income tax will instantly make us more competitive," Channell said last month. "It will recruit the high-paying quality jobs our citizens need. And more importantly, it will help hard-working Georgians keep more of their money.”

Channell was not available for comment Thursday.

The Majority Leader, Rep. Larry O'Neal of Bonaire, said last week that the new tax plan would show that "we're open for business," and he said it would attract national and international attention to Georgia. O'Neal, a Republican, was not available for comment Thursday.

Minority leader, Rep. Stacey Abrams, says tax reform is not the only driver of job creation.

“We want to be open for business and I think that’s everyone’s goal. But this notion that a tax cut in and of itself creates jobs is a phallacy. It has never proven itself to be true," said the Atlanta Democrat in an interview Thursday. "If all you needed to do was cut your tax rate, then Alabama would have more jobs than we do. They don't."

Abrams said the states that attract high-quality jobs have a good education system, a comprehensive transportation network and solid infrastructure. And she said that’s what businesses that testified before the tax council said.

“Jobs come when you have the ability to sustain the people who come with the jobs. Georgia doesn’t currently meet all the guidelines," she said. “We don’t have a stellar education system. We haven’t solved our infrastructure issues and we haven't solved our transportation issues.

GOP leaders want to pass a tax reform before the legislative session ends on Thursday. With tax reform, the 2012 budget, a Sunday alcohol sales bill and immigration reform, legislators will have a full agenda during the final three days of the session.

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