Things are relatively peachy in Georgia. According to Site Selection Magazine, Georgia boasts the best US business climate. We have a right to work state, enjoy no estate tax and our state and local debt ratio is one of the lowest in the country.
Our state’s rapid economic growth reflects a strong economic freedom environment and that means jobs and opportunity in Georgia.
Georgia is strategically located, with 80 percent of the United States market located a two-day truck drive or two-hour flight out of Atlanta. We have an extensive rail network, a port and five major interstates. We have affordable power and we are diversifying our economy. We have a lot going for us.
Our economy is growing and some Georgians would wonder why we need to reform our state tax system.
While the corporate tax in Georgia is eighth lowest in the country, the individual income tax ranks forty-first and the property tax ranks thirty-first. To remain competitive, Georgia needs to lower or eliminate some taxes.
To quote the study Rich States, Poor States written by former Wall Street Journal economist Stephen Moore and President Ronald Reagan’s economic advisor Art Laffer, when you tax something more you get less of it, and when you tax something less you get more of it. Taxes affect behavior through the incentive to work, innovate and hire.
Anecdotal evidence from the states bears this out. Each year, the Tax Foundation ranks all 50 states according to how competitive their tax systems are, with higher marks for low rates, less complexity, and fewer politically – motivated tax preferences. A comparison of the ten states with the best tax climates and the ten states with the worst tax climates from 2000 to 2010 reveals some striking results. The ten best states experienced:
· 135 percent faster personal income growth;
· 445 percent more new jobs;
· 152 percent faster economic growth; and
· 299 percent faster population growth.
In other words, states with lower tax burdens had economies that were thriving, businesses that were creating more jobs, incomes and standards of living that were rising more rapidly, and people and businesses flocking to their states (probably fleeing the high-tax areas of the country). People and businesses vote with their feet.
While the majority of Georgia’s tax collections come from property taxes and sales taxes, and the corporate income tax contributes only 2.2 percent of the tax collection, many small businesses file taxes under the individual income tax which is ranked among the 10 worst in the country. In 2010, the net income of these passthrough businesses comprised 54 percent of all net business income in Georgia. A reduction in the personal income tax rate is a reduction on more than half of all the business income in our state. Georgia’s economy is driven by small business.
The Tax Foundation’s 2014 edition of the State Business Tax Climate Index enables business leaders, government policymakers, and taxpayers to gauge how various states’ tax systems compare. Georgia ranks thirty-second highest, scoring in the top ten in the corporate tax category, but in the bottom ten in the individual income tax category.
North Carolina, currently ranked forty-fourth, is projected to move to as high as seventeenth as their recent tax reforms take effect. Florida is ranked fifth, South Carolina thirty-seventh, Alabama twenty-first and Tennessee fifteenth.
That’s not so peachy. Competition for jobs and investment is fierce, and we are surrounded by states which are aggressively working to attract business and industry. Georgia must continue to do better.
While alternatives to the current tax structure in Georgia are being debated, there should be no debate that reform is needed. That reform should incorporate the keys to good tax policy which include simplicity, transparency, economic neutrality, and fairness.
America was founded on the opportunity for more citizens to achieve prosperity. The American dream isn’t to take money away from the wealthy and give it to the poor. The American dream is to make the poor more prosperous by providing the opportunity for better paying jobs that allow them to take home more of the money they work hard to earn.