Georgia Governor Nathan Deal signed a new tax bill into law last week. Nearly everyone is affected, from married couples, to internet shoppers, to small businesses. Economics Professor Christine Ries outlines the changes and weighs in on the good, bad and controversial.
Those who supported the bill fairly claimed it would help families, attract companies to invest in Georgia and improve the competitiveness of businesses already here. It was also claimed that the bill represents a net tax cut for Georgia citizens.
The most significant change is the comprehensive modernization and streamlining of sales tax exemptions for business – particularly the mining, manufacturing and agricultural industries. The use of energy as a business expense in manufacturing was exempted from sales tax. These changes will reverse outmoded polices that were draining manufacturing jobs from the state. The code modernization will help large and small businesses alike by dramatically reducing the necessity for auditing, compliance, paperwork and regulation. Small businesses are the most damaged by these kinds of tax compliance complications.
The changes also reduce income taxes for married couples by increasing their personal exemptions by $2,000 per couple. This reduces the ‘marriage penalty’ and allows the supporters of the package to fairly claim that it helps families.
The most controversial aspect of the package is an attempt to force internet retailers to collect sales taxes from Georgia tax payers. This is a tax increase. Supporters argue that it will help the Georgia economy because the tax will cause customers to reduce their internet purchases and purchase more from local stores. If, however, internet shopping is primarily driven by issues of convenience, selection and price, local retail shopping will not return and the provision will simply represent a tax increase. We can expect legal challenges to this part of the law and should be prepared to see very little change in buying habits. Retailers in Georgia shouldn’t count on a change in sales tax treatment to reverse the new competitive realities caused by the information revolution and Georgia’s exceptional logistics systems.
The changes will clearly benefit the economy, private enterprise and the taxpayers of the state. While it may or may not immediately represent a tax cut, the dynamic effects of economic growth will kick in quite rapidly. Even if state and local tax revenues are reduced because manufacturers aren’t paying taxes on their use of energy, we will more than compensate due to greater retention of current Georgia businesses and increased attractiveness to companies fleeing from states such as California and Illinois. Their politicians are moving their tax codes in exactly the wrong direction.
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