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Vol. 1  No. 21                                                  Monday, November 8

Georgia’s tax structure is a big topic. This Peach considers some top line problems with the way we raise revenue, its regressive nature, how it affects spending, and what reforms are possible.

How We Tax and Spend in Georgia: 
Why We Can't Have Nice Things

No one exactly likes to pay taxes, but we sure want most of what taxes provide. Taxes are what we pay to have the things or services we cannot provide as individuals. No matter how rich someone is, it would be hard to build an interstate, or provide clean water, or regulate interstate commerce. Oliver Wendell Holmes, Jr. is often quoted, "Taxes are the price we pay for civilization.” Yet, taxes can be applied in a wide variety of ways, some fair and others not so fair. They can burden some groups of people more than others, and can be used to increase or decrease income inequality.

A uniformly applied tax that takes a larger percentage of income from low income earners than from high income earners is regarded as regressive. A tax or fee is considered progressive if it places a higher percentage burden on higher income earners. The federal income tax is generally regarded as progressive because theoretically the higher your income, the greater percentage you pay as tax. 

In Georgia, Black and brown people disproportionately earn lower incomes. In the poorest 20 percent of our population, 54 percent are people of color. Yet in the richest 20 percent only around 23 percent are people of color. This is mostly due to a long history of discrimination, segregation and other public policies that have prevented Black people and other minorities from holding onto property and growing generational wealth. 

We have two big problems with our tax system in Georgia. First we do not bring in enough revenue to reasonably meet the needs of our growing state. And second, our tax structure and fees burden lower income Georgians and exacerbate our already large income disparity.

In Georgia, we have an array of taxes and fees that fund our state government. It should raise $27.3 billion for our current fiscal year which began July, 2021 (FY2022). Of this total, the biggest source of income is the state income tax, bringing in around $13.6 billion. Next largest is sales tax at $6.6 billion. Other taxes and fees bring in $3.5 million and some designated funds such as the motor fuel tax and lottery funds net $3.4 billion. Each of these buckets of income for the state are in need of updating and reform. 

The state income tax is currently highly regressive, and the maximum tax rate has not been increased since the 1930s. According to a recent report by the Georgia Budget and Policy Institute (GPBI), “ The current structure of Georgia’s personal income tax remains highly outdated and effectively operates more like a flat tax, in which residents reach the highest tax rate at a relatively low level of income of $7,000 for single residents and $10,000 for married couples, rather than a true graduated income tax, where households are taxed at higher rates as income increases.” 

Thus, a low income, single person, making say 50,000 a year, will pay the same 5.75 marginal tax rate as a person making $200,000. The actual amount paid by the higher income worker may be bigger, but it is  less of a financial burden.

Georgia’s Sales and Use taxes are even more burdensome for lower income residents. We currently pay 4 percent state sales tax on most purchases. In recent years, the legislature has exempted most foods except canned, frozen and prepared foods. However, unlike many states, Georgia does not collect sales tax on any services such as accountant fees, landscape services, or personal services like salons or spas. Such services are more frequently used by higher income people. These exemptions proportionately reduce the amount of sales tax paid by higher income citizens. Specifically, according to a May 2021 report by the Institute on Taxation and Economic Policy, as a share of income, Georgians in the bottom 20 percent of earners pay approximately 6.8 percent of their earnings in sales tax, in contrast to those with incomes in the top 20 percent who pay an estimated 0.8 percent of their overall income in sales tax. 

Other sources of state revenue are also of concern. While fines and fees are a small portion of state revenue, they can again have an outsize impact on lower income earners. Motor vehicle license fees, tag and auto fees, additional sales tax on tobacco and alcohol and others all have a cumulative effect. And the fines and fees for those incarcerated or on probation are also a disproportionate burden on lower income people. 

A subsidy that affects revenue is the legislature's fondness for corporate tax credits. According to the GBPI report, over the last decade, the value of Georgia’s tax credits for corporations have increased from $3.4 billion to $6.2 billion. These credits have helped 94 percent of corporations to report a taxable income of $0 or less to the state in 2019. While corporations promise jobs and economic development for these credits, there is little oversight, reporting or transparency of the efficacy of tax credits. Yet we know for sure that these credits decrease our state revenues. 

Overall, Georgia raises the least revenue per person of the fifty states. We certainly qualify as a low-tax state. But despite the higher burden on low income citizens, we also don’t have enough money to fund basic services. We have experienced almost two decades of austerity budgets which have caused numerous budget cuts and deficits in our state budget, and more costs foisted off to counties and cities. These austerity budgets and deep cuts have coincided with 20 years of Republican leadership beginning with the election of Gov. Sonny Perdue in 2002. Now, we are seeing the results of tax and spending cuts and a move towards smaller government and fewer services.

Danny Kanso, senior budget and policy analyst at GPBI, lists numerous deficits in funding of state programs, from salaries for pre-K teachers, not meeting the adequate funding for 18 out of the last 20 years, or reduced health care budgets. “When you really dig into those gaps, you see the results of year over year underfunding,” he says.  

Despite this history of budget cuts and outmoded revenue models, there are opportunities in the near future for the governor and state legislators to make bold moves to put Georgia on a better, more fiscally sound footing that will also help ease the burden on lower income citizens and work to reduce income disparities. First, the state does have ample surplus money. The state’s reserve, called the rainy day fund, has $4.3 billion, the maximum it can hold. In addition, there is an additional unobligated surplus of 2.2 billion. Some of this surplus could be used to fill state agency budget gaps. 

Additionally, the state should make smart use of some of the federal money that is coming into the state, both through the American Rescue Plan, and soon from the Infrastructure bill and the Build Back Better social infrastructure bill to help fill some of the budget holes from recent austerity budgets. One example, is that the current FY2022 budget has cuts to education of $383 million. 

State leaders must use a variety of smart ways to increase revenues and at the same time reduce the tax burden on low income Georgians. The GPBI report “Reimagining Revenue: How Georgia’s Tax Code Contributes to Racial and Economic Inequality” recommends:

  • Add services to be covered by the sales tax.
  • Implement a state tax credit for low income families.
  • Modernize the state income tax to have graduated income brackets and higher marginal tax rates.
  • Stop or greatly reduce tax credits for corporations. 

This report goes into much more detail about the problem with taxes, and also includes a sad history of how our regressive tax structure has been a factor in the racial and income inequality we see today. It also demonstrates that state tax and revenue policies are not race-neutral and that Georgia’s highly antiquated system of taxation, alongside the state’s contemporary practice of directing billions in public funds to corporate interests, contributes to a further widening wealth gap between white Georgians and people of color.

“We have a lot of deficits,” says Kanso. “We didn’t get here by accident, but also there is a real need to be intentional going forward and there is a lot of positive change we could do.” No one, Republicans nor Democrats, are in favor of a bloated, inefficient government. But we all do need a well-funded, efficient and caring government that provides essential services and helps all its citizens thrive. 

Reading: This amazing article from Runner’s World, “Twelve Minutes and a Life” by Mitchell S. Jackson is about racism in running but so much more for us here in Georgia. It recounts the last 12 minutes in the life of Ahmaud Arbery. The article recently won a Pulitzer. 

About the Author

Krista Brewer is a native Atlantan who has a professional background in writing, reporting and editing. For several decades she has closely followed Georgia politics, focusing on topics such as healthcare, voting and immigrant rights, and budget and environmental issues. She is active on Twitter and invites readers to follow her @KristaRBrewer
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