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Here's How GA Can Improve Economic Competitiveness - Op Ed By Mike Klein

May 23, 2013 J

Georgia’s track record as a low-tax, pro-business, pro-growth state is absolute. However, the state has been unable to enact an important threshold – elimination or at least a sizable reduction in the 6 percent maximum personal income tax rate – and that prevents Georgia from being considered at the top of states that have low-tax, pro-growth fiscal policies.

Today the American Legislative Council released its sixth annual “Rich States, Poor States” economic competitiveness index report that evaluates states on 15 fiscal policy sectors including tax rates, state regulations, right-to-work laws and size of the public workforce as a percentage of statewide population. The ALEC formula rewards low-taxing, low-spending states, of which Georgia is one.

Georgia does well … ranked as the eighth best state nationally and up two spots from one year ago. But therein is part of the challenge. Georgia ranked eighth in the first ALEC report five years ago, then slipped several spots and only now has it reclaimed the eighth spot ranking.

To see that idea from another angle, ALEC does not consider Georgia has done enough with tax and regulation policies in five years to greatly improve its ranked position vs. other states.

“Georgia has become one of the most Republican states in the country and it’s also become a very fiscally conservative state over the last 10 and 20 years,” said co-author Stephen Moore, during an ALEC conference call this week. “If there’s a state that could eliminate its income tax it would be Georgia. The table is set for that. We’ve been pushing it for a long time.”

The 2010 Georgia Special Council on Tax Reform recommended elimination of most personal income tax deductions and adoption of the lowest possible revenue neutral income tax rate with 4 percent as the target. The Legislature has never come closer than almost voting on a bill that would have reduced the maximum personal income tax rate to 4.5 percent. There was no personal income tax reform legislation during this year’s General Assembly.

Nine states do not collect personal income tax. “I’ve always thought Georgia should be the next domino to fall especially because, who are your neighbors?” said Moore, who is a member of the Wall Street Journal editorial board. “You’ve got Florida and Tennessee, both which have no income tax. You’re what we call an income tax sandwich. You’re sandwiched between two states that don’t have (state personal income tax) so that puts you at a competitive disadvantage.”

Moore, ALEC’s Jonathan Williams and economist Arthur Laffer are the co-authors. “Georgia can do some other things that would not necessarily cost from a revenue perspective,” said Williams, who is director of ALEC’s Center for State Fiscal Reform. He cited additional pension plan reform, requiring a super majority legislative vote for tax increases, and mandatory government spending limits, along with reduced state liability and workmen’s compensation costs.

The 2013 edition of ”Rich States, Poor States” also highlights funding and obligation problems posed by public sector pension plans, which the non-partisan State Budget Solutions says are underfunded by some $4.6 trillion. Williams said the federal government recently filed suit against Illinois “for basically fraudulent pension accounting. We find that issue in a lot of states.”

(Click here to read “Rich States, Poor States.”

Reprinted with permission of Georgia Public Policy Foundation.

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