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Georgia Considers Reducing Income Tax, Raising Sales Tax


 Georgia: if income tax rates go down, must sales tax rates go up?

There is a movement in Georgia to greatly reduce or completely abolish the state income tax, and raise sales tax in its place. Although none of the bills promoting this idea came to a vote in the Georgia House and Senate during the 2013 session, “observers think they might next year.” Indeed, the Georgia Budget and Policy Institute (GBPI) worries that the idea is “gaining traction.”

GBPI is an Atlantic think tank that “seeks to build a more prosperous Georgia.” Its analysis entitled Tax Shift Could Hit Most Georgia Seniors with a Tax Increase explains how seniors will suffer if sales tax rises and income tax is cut. Seniors have “little or nothing” to gain from a reduction in income tax. Social security benefits for Georgians aged 65 or older are exempt, “as is up to $65,000 per retiree of annual retirement income, such as payments from pensions and IRAs.”

The study points out that sales tax rates would have to climb quite high, perhaps into double digits, in order to recoup lost income tax revenue. Were the current exemptions for groceries and prescriptions to be eliminated, monthly costs for a senior couple would increase by nearly $50 for groceries and $8 per prescription. An earlier report issued by GBPI predicted that the proposed income tax reductions would hurt not just seniors but would “boost the burden on 80 percent of Georgians.”

Not everyone agrees. Christine Ries, an economist from Georgia Tech, points out that “higher-income people spend more money.” While the percentage of income spent per purchase may be smaller, wealthier people spend more because they purchase more. She argues, “If you tax consumption, you’re going to get more income, more savings and more investment in the future” (The Augusta Chronicle).

It remains to be seen whether or not Georgia lawmakers will seek to reduce income tax and raise sales tax in 2014. Other states are considering the opposite approach:

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Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.