Before you click to go to another page here on Cartersville Patch, give me a chance to explain. I promise this column is not about the debt ceiling negotiations going on in Washington D.C. I like a good movie or show as much as the next guy, but this kabuki theater we call politics in our nation's capital not only doesn't get a thumbs up, unless the person is trying to hail a taxi to escape D.C., anyone even trying to raise his thumb in response to this mess deserves to have it smashed with the nearest available hammer. No, my diatribe today is all about state and local taxes.

This past session of the Georgia legislature saw a major push to implement a tax reform package that would lower income tax rates for individuals and businesses, and in return add a large group of currently untaxed services to the list of things subject to the state sales tax. The proposal would be revenue neutral, meaning the government would still take in the same amount of tax dollars as before. The wheels came off the plan as special interest groups objected to various components, and there just was no time for a grand compromise. This issue isn't going away. State bean counters, lobbyists, legislators and their ilk are still hard at it during the offseason as they try to fashion some kind of agreement that can sail through the General Assembly next year.

Gov. Nathan Deal and legislative leaders want Georgia to be the premier state in the southeast for businesses to locate or expand. Lowering corporate income tax rates could help lure new employers to our state, which is badly in need of new investment and jobs. They also understand that our neighbors of Florida, Tennessee and Texas each have no state income tax, while Georgia does. Georgia's housing market is in shambles, and luring new residents (especially retirees) by reducing and eventually eliminating the state income tax could reduce the number of vacant properties. This should help stabilize home valuations, which in turn helps local city and county governments whose tax bases have been eroded. Increasing the number of retirees also helps school systems, as these people typically do not have children in school yet they would still pay school property taxes. 

Government is primarily supported by three types of taxes: income taxes, sales taxes and property taxes. There are also various user fees, tariffs and product-specific taxes like gasoline taxes, but for the sake of our discussion those can be classified as sales or consumption taxes.

Bureaucrats and bean counters like to make the case that all three tax types are needed, especially at the state and local levels, in order to generate consistent revenue in spite of fluctuations in the economy. School systems, cities and counties have traditionally been enamored with property taxes, as these have been reliably consistent over the years. Boy has that changed with the erosion of home, land and commercial property valuations! Even traditional conservative bastion Cobb County, which over the past 30 years has run as tight of a financial ship as any county in the state, is seriously considering raising its property tax rate this year to compensate for the precipitous decline in property values.

So if Georgia is really serious about reforming our state tax code, is reducing or eliminating income taxes by expanding the sales tax base the right approach? Taxing income has the effect of decreasing the incentive to produce and earn. Why knock yourself out to earn an extra few thousand when those dollars would be taxed at the top rate, leaving you little to show for your efforts? Plus the benefits to the state of cutting or eliminating business and individual income taxes as I outlined earlier do make sense. If some of your neighboring states have no income tax and you do, that makes for a major competitive disadvantage.

On the other hand, taxing spending has the potential of decreasing consumption, especially large ticket items like cars and furniture. Expanding the sales tax base to include services like advertising, attorney's fees and auto repair labor without actually raising the sales tax rate could mitigate those concerns and almost double the amount of consumption tax revenue collected.

Several years ago property tax reform was part of the mix, but this time all of the discussions about a new tax reform package have centered on income and sales taxes. Personally, I feel that property taxes are the cruelest tax of all. It’s bad enough to pay taxes on what you earn or what you spend, but at least once you pay the tax, the government can’t come back for more unless you either earn more money or buy something else. In either case, you at least have the cash to pay the tax. With property tax, it is very different.

You work hard, raise your family and along the way finally pay off the mortgage on your home. You own your home free and clear! Well, not exactly. Over time the value of your home rises on paper and virtually every year the taxman asks for more. In effect, though you "own" your property, you are really in essence renting it from the government. Don't pay the property tax bill and your home will be sold out from under you for the overdue taxes. We’ve all heard stories about folks on fixed incomes due to retirement, disability or illness who have had to give up their homes because they could no longer afford rising property taxes. It happens.

So how can we structure a reform package that will achieve the desired results? It won't be easy. It seems almost everyone has their pet tax exemption or perk they want to protect, and it is so easy to get core constituencies stirred up. If certain major corporations and industry sectors want to take part in an overall rising state economy plus receive new corporate income tax reductions or even elimination, then they must be willing to give up their current existing special loopholes and exemptions.

The same goes for expanding the sales tax base to includes all goods and services. If we start carving out special exemptions so that sales tax isn't charged on auto repair labor, but hairstylists must charge it on their services, then the plan is doomed. It must be across the board and include everything and everyone, because we'll all share in the long-term benefits.

Now let's get down to the nitty gritty. First we'll look at how the sales tax system can be reconfigured. A new plan should require that all goods and services, including groceries, would be subject to state and local sales taxes. This includes LOST, SPLOST, ESPLOST, and the proposed transportation tax, TSPLOST. However, before you get upset over the grocery tax, just remember you are already paying local sales taxes on groceries, just not the state's 4 percent sales tax.

Here's the good news, assuming the 1-cent TSPLOST is passed next year, the combined sales tax rate for all four of the local sales taxes would be 4 percent. However, if we basically double the sales tax base by including all goods and services, then we could reduce the rate for all of these four from one-cent each to one-half cent each and still generate the same amount of revenue for our schools, counties, cities and transportation projects. That means the combined rate for all four would only be 2 percent instead of 4 percent. Add in the state's 4 percent rate and your overall sales tax rate just dropped from 8 percent to 6 percent.

Under this scenario, the 4 percent state sales tax would now also bring in roughly twice as much revenue as before, and that additional amount is what would be used to either partially or completely eliminate the state income tax.

There is another option. Since the overall sales tax rate would drop from 8 to 6 percent, we could increase the state portion from 4 to 6 percent, which would keep us exactly where we are currently with an overall 8 percent rate. This additional revenue may ensure enough dollars to completely wipe out the income tax and possibly give us some leftovers that could be used to eliminate the automobile property tax included on your annual car tag renewal.

I know this all sounds very complicated and any plan this massive will be a hard sell, but the immediate and long-term benefits are almost too much to resist. The bottom line is that whatever plan is finally adopted, it must at least completely and forever do away with one of the three current taxes we pay. Otherwise the temptation of government to slowly raise those rates back up again will be too great. It also must be revenue neutral. Meaning that state and local governments will take in the same levels of revenue they do now, it will just be assessed and collected in a new way.

So it all comes down to whether or not Georgians are willing to make what some might see as a radical shift in how we assess and collect taxes in this state in order to make Georgia more competitive. Or will we once again resort to fighting to protect our own little corner of tax code land and thus doom Georgia to being that southeastern state with high personal and business income taxes?

Follow me on Twitter @chuckshiflett and also check out my statewide columns at: The Backroom Report.