continued from page ington also ….

continued from page

ington also have gross receipt taxes, which are taxes imposed on the seller for all or most of the sales that occur in the state. Washington has a sales tax rate of 6.5% compared with Georgia’s 4% rate, but Washington’s per capita sales and gross receipts tax revenue are about 3.6 times Georgia’s sales tax revenue per capita.

Back-of-the-envelope calculations suggest that Georgia would have to increase its current 4% state sales tax rate to 11% to replace the personal income tax revenue, and to nearly 13% if Georgia were to also eliminate its corporate income tax. On top of that would be the local sales tax, which is 3% or 4% for most Georgians.

Georgia could slow its tax revenue growth by axing the income tax What are the likely effects of eliminating the state income tax and increasing its sales tax?

First, it would likely result in much slower growth in tax revenue. Over the past 30 years, I calculated that Georgia tax revenue per capita, adjusted for inflation, decreased by about 17% for the sales tax but increased by 66% for the income tax, not accounting for changes in tax base definitions or reductions in the income tax rates. This would likely require frequent increases in what goods and services are taxed and the sales tax rate.

Second, it would result in a significant decrease in tax equity since the benefits of eliminating the income tax accrue more to higher income households while the cost of a sales tax increase falls more on lower income households.

The Institute on Taxation and Economic Policy reports that these non income tax states are among those with the most inequitable tax systems. Currently Georgia’s state tax system ranks as the 27th most equitable. We should expect that if Georgia eliminated its income tax, it would become one the 10 states with the most inequitable tax systems.

Third, we might expect that it would make the state more economically competitive. However, research studies have not produced consistent findings regarding the effect of taxes on economic growth. Some find a negative effect while others find a positive effect, but the majority find no statistically significant effect.

It is notable that Georgia’s employment growth rate since 2010 is actually greater than five of the states without an income tax, according to calculations I made from Bureau of Labor Statistics data. And it is certainly delusional to think that any additional economic growth will be sufficient to ensure there is enough new tax revenue to replace all of the lost income tax revenue.

Clearly, eliminating the state income tax is a complex issue. The state needs to proceed with caution, fully exploring the many issues and tradeoffs required.

David L. Sjoquist is an emeritus professor of economics and faculty affiliate in the Center for State and Local Finance in the Andrew Young School of Policy Studies at Georgia State University.