McGinty: For Now, State Needs Revenue, Not Tax Cuts

Johnathan McGinty
Athens Banner-Herald
February 03, 2010

For the past three years, we've heard a lot about pinching pennies under the Gold Dome.

The analogy, a simple but effective one, is that in lean times, people don't need to live in an extravagant manner. And, just as families across the country are cutting back, so should the government.

As a result, Georgia has cut spending, trimmed the fat and doled out furloughs, all with the hope of simply making it through these difficult economic times. While painful, the strategy has enabled the state's lawmakers to balance the budget time and time again.

The problem with this simple analogy is that it's too simple.

Any family dealing with a drop in income arguably would work hard to cut costs wherever it could, but it also would work just as hard to identify new sources of income. Family members would ask to work an extra shift or two in addition to choosing ground beef over steak. They'd pick up a second job at the same time they decided to clip coupons.

The point being that those who tell you that government should behave like everyday citizens and tighten its belt in tough times are sharing only half the story with you.

And that's why Gov. Sonny Perdue, who is no fan of tax increases, is getting such a bad rap when it comes to this year's budget. Staring down another massive revenue shortfall, the governor's proposal includes a temporary fee on hospitals and the selling of public debt to private investors as a way to make ends meet.

Counterparts from both sides of the aisle in the Georgia General Assembly, however, are less than enthused, and the Republican leadership has pledged not only not to raise taxes, but to cut them even more.

Obviously, there are some flaws to the notion that cutting taxes will magically fix our gaping budgetary hole. Considering that Georgia is a balanced-budget state, the basic math behind it doesn't hold, as any type of tax cut results in a real loss of revenue.

Likewise the argument - a tenuous one at best - that slashing taxes will spur economic expansion, thus negating any projected revenue loss, is one that can be achieved only through long-term implementation. Tax cuts, by their nature, typically are used to provide immediate, short-term financial relief or to incentivize a behavior. As a result, any sort of potential economic growth could be measured only after the cuts have been in place for multiple years.

In the short term, however, there just wouldn't be enough spending and investment on the part of the private sector to not only adequately make up for the loss in projected revenue, but also bring in any additional funding.

Any sort of tax cut should be tied to a particular policy aim, such as the proposal by Sen. Chip Rogers and Rep. Tom Graves that would encourage businesses to hire workers in exchange for a tax credit.

Likewise, there are common-sense revenue mechanisms worth exploring:

► An increase in the cigarette tax by $1 per pack would provide a much-needed short-term infusion of cash to the depleted coffers of the state government. The Georgia Budget and Policy Institute projects it to generate $300 million to $400 million in additional revenue, while providing the long-term benefit of reducing smoking among the population.
► The Georgia Association of Educators has proposed a temporary half-penny sales tax with any revenue designated to fill the gaps in the education budget.
► Last year, House Bill 356 would have enabled local communities to enact point-of-sale collection of sales tax revenue and to contract with private vendors to perform that service, all without costing taxpayers a dime. Currently, the state has more than $1.6 billion in total tax delinquencies, and this legislation is projected to collect up to $1 billion in lost sales tax revenue.
► In the long term, the state must establish a method to conduct a comprehensive annual review of all its tax exemptions. There are 39 other states that currently have a process in place to evaluate the costs and benefits of their tax breaks.
► Georgia should, finally, legalize Sunday sales of alcohol, thus ensuring an additional day of collected tax revenue and economic activity for many commercial businesses.

These aren't radical ideas, it should be noted, but ones embraced by policymakers across the country. It's past time that Georgia's leaders began considering utilizing them here at home.

• Johnathan McGinty runs Beyond the Trestle (beyondthetrestle.com), a blog that covers local and state politics.

Originally published in the Athens Banner-Herald on Wednesday, February 03, 2010

http://www.onlineathens.com/stories/020310/opi_558008867.shtml

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