Wednesday, September 8, 2010

Tax Council meeting at Mercer University in Atlanta (not a public input meeting)

1.  The first presenter was Matt Gardner with the Institute on Taxation and Economic Policy

After Mr. Gardner’s presentation, A.D. Frazier asked him about the effect in South Carolina of reducing corporate income tax. Mr. Gardner said that industries try to play one sate against the other to get tax structure to their advantage. He referenced the Krupp Corporation playing Louisiana, Mississippi and Arkansas against each other to get best tax advantage. He said that the only entity that benefits in these situations is the company getting the tax credit or exemption. He said that whenever government creates a winner with these issues, it also creates losers.

Chairman A.D. Frazier asked him about the inventory tax; that Alabama and North Carolina do not have an inventory tax, so where do the distribution centers go? Mr. Gardner did not directly answer the question.

Mr. Gardner said that if tax breaks are the only consideration for a business to locate, there is something wrong with the business plan. There are other important considerations such as education, the market, transportation, etc.

Chairman Frazier asked him if he knew of any other state that established a tax council with the charge like the one in Georgia. Mr. Gardner’s answer was no, and that he thinks what we have done in Georgia is terrific.

2. Alan Essig, Executive Director of the Georgia Budget and Policy Institute and Kelly McCutchen of the Georgia Public Policy Foundation made a joint presentation

First, Alan Essig presented slides to show what Georgia’s taxes are now being used to pay for.  He said Georgia is traditionally a low tax state.

·         He said we have a shrinking tax base, and that we have the 19^th (of the 50 states) most regressive tax policy per NCSL.

·         He criticized Georgia’s tax credits and exemptions, but said that overall, the foundation for tax policy in Georgia is good.

·         He said that we need to keep diverse revenue streams and noted that our sales tax does not include services.

·         He said that we need to keep the current include tax streams, and expand the sales tax to some services. He also believes we should capture sales tax on internet sales.

·         He believes we should raise the tax on cigarettes, and the excise tax on motor fuel.

Next, Kelly McCutchen presented.

·         He praised the principles that the tax council is basing its work on.

·         He said we need to consider the long term in making decisions.

·         He said we tax energy and inventory, and that our neighboring states do not.

·         He criticized sales taxes on business inputs. He used the example of sales tax on telecommunications equipment to build broadband networks.

·         He said we need to broaden our sales tax.

·         He gave a breakdown of currently untaxed consumer spending.

·         He said expanding sales tax to currently untaxed services at 4% would amount to an additional $7.4 b in revenue.

·         He said current sales tax exemptions total approximately 26% of personal income tax.

·         He said the question is how much to expand the base, and then how much to reduce the rates.

·         He showed a chart of possible trade-offs.

3.  There was a discussion among the members of the council member regarding the sales tax on food. There was some concern expressed by Economist Dr. Christine Ries about the low income population having to pay sales tax on food. There was a discussion about the low-income getting a credit for paying sales tax on food up to a certain amount (this was part of the GREAT plan) if they filed it on their income tax. He said that H&R Block and other organizations will electronically file for low income people.

4.  Jim Eads from the Federation of Tax Administration presented

·         He said Georgia should not rush into tax reform

·         He listed bills in U.S. Congress that would impact the way states tax sales

·         He talked about one proposal in Congress called the “Tax Fairness Bill” that would prevent states from changing their tax policy for five years

·         He criticized a federal bill called the “Military Spouse Relief Act” that provides that if a spouse lives in a state where the armed forces member is stationed, then no state tax has to be paid on his/her behalf

·         Chairman Frazier asked him to talk about the “Gross Receipts Tax”.  The answer was not clear. See below for information I have received from the Georgia Public Policy Foundation regarding this particular tax:

See: A Primer on Gross Receipts Tax, provided by the Georgia Public Policy Foundation

5.  Panel Discussion with Joe Crosby of COST, Mike Petrik of the Tax Policy Committee of the Georgia Chamber of Commerce, John Masters of the Georgia Society of CPAs, and Nick Masino of the Gwinnett Chamber of Commerce.

I could not identify the members of the panel discussion by name, but the following are their comments, as recorded in my personal notes:

Chairman Frazier asked how Georgia should structure its tax code to attract business.

Panel member A answered:

·         Leave it alone

·         If it is not left as it is, then keep the tax burden low, keep Georgia competitive

·         It is not tax incentives that make the deal, but rather things like trauma care, education

Chairman Frazier asked what Georgia more economic development friendly.

Panel member B answered:

·         Do no harm

·         Make changes to tax code incrementally

·         Broaden the base for the sales tax

·         Most current sales tax exemptions good

·         Current corporate income tax does not push businesses away. It is not so onerous that companies will not locate here in Georgia

·         Georgia has not lost many senior citizens to Florida

Panel member C said

·         Georgia needs an independent appellate mechanism to which citizens can bring complaints

·         Citizens should not have to pay taxes until appellate process on their complaint is complete

Chairman Frazier asked, what do businesses want the Georgia tax code to do.

Panel member B answered:

·         It should not be difficult to administer

·         We should tax services

Panel member A said

·         Keep it simple

Chairman Frazier asked if there is a difference between pro-growth and smart growth.

Panel Member D (identified as Mike Petrik of the Tax Policy Committee of the Georgia Chamber of Commerce) answered:

·         Yes, there is a difference. Attract types of business the right types of business, the right fits

·         We should not look at growth as the holy grail

Chairman Frazier asked about the success of Quick Start

Panel member A said:

·         Quick Start is the number one training program in the nation

·         We should train and prepare our citizens

·         Should not have to bring in a work force from out of state

Panel member C said

·         It is not our tax policy that has cause Georgia to fare so poorly in this recession

·         Said that sales tax on telecom equipment and energy are issues that need to be addressed

Council member Economist David Sjoquist asked, of all sales tax exemptions, what exemption needs to be added to help the growth of business.

All panel members agreed that a sales tax exemption on energy the most important to add

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