This Is Not A State "Fair Tax" - By Virginia Galloway

March 11, 2011 JLabor, Education & Pensions

[img_assist|nid=23007|title=Fair Tax?|desc=|link=none|align=left|width=200|height=200]Some Georgia citizens, including more than a few state legislators, are under the impression that the tax reform legislation, HB 385-387, are similar to the federal “Fair Tax” proposal. These bills, 127 pages each and created by the Special Council on Tax Reform and Fairness For Georgians, are definitely not the Fair Tax. In a multitude of ways, these bills differ from the Fair Tax, but here are three big differences.

The Fair Tax is only meant for new goods and services. The proposed Georgia bills specifically add sales tax to used cars, boats, and planes sold by individuals along with a bevy of selected services. It doesn’t repeal sales tax currently required from dealers for resales. It does exclude certain services, like accounting and legal services.

The Fair Tax would eliminate the need for the IRS. The Georgia bills would have no effect on the federal tax system nor repeal state income tax. So all the tax prep headaches and expenses would still be with us, along with the IRS and the Georgia Department of Revenue.

The Fair Tax replaces income tax and many other taxes with a sales tax. The Council stated numerous times that they did not expect to replace Georgia income tax, which provides about one-third of state revenue. They did recommend ratcheting down the tax rate, from 6 to 5 percent for 2011, and maybe down to 4 percent later “if the state could afford it.” The aspect they aren’t discussing much is their simplification of the tax code – translation: no personal exemptions, retirement income exemptions, or standard/itemized deductions. Put simply, people could easily end up paying more income tax because so much more of their income is taxable.

Since the examples given by the Council’s report only showed favorable income tax outcomes, let’s see two outcomes that may be more typical for metro Atlantans. A 65–year-old retired couple making $50,000,under the current system, can exclude $35,000 of retirement income, get a $5,600 personal exemption, and $5,400 standard deduction for 65+, thus owing $81 – $26 (low income credit) = $55 state income tax on $4,000 of income. Under this bill, they’d exclude $28,000, get no personal exemptions or deductions, and pay tax on $22,000. Tax would be $1,100 – $584 tax credit = $614.

How about a couple making $75,000 with two kids and a mortgage? Currently they get a $5,400 personal exemption, $6,000 exemption for their two children, and itemized deductions of perhaps $18,000. Their Georgia tax would be $2,473 on $45,600 of income. Under the new guidelines, $75,000 – $4,000 kid exemption = $3,550.

Bottom line: This is not the Fair Tax. There’s not even a close resemblance. With all the new sales taxes on services and tax increases on cigarettes and gasoline, this is probably not even a fair tax. In fact, it looks more like a tax increase posing as tax reform.

Virginia Galloway is state director of the Georgia chapter of Americans for Prosperity.

• Share This:
• f post to facebook
• t send to twitter
• m email to a friend