Charles Shiflett Column September 4, 2005

We Can't Adopt Them All

If you're a proponent of tax reform as I am, you have to be encouraged by all the attention various
reform proposals are receiving this summer. There are lots of great ideas floating around, and a
Georgia court case may hasten the effort to adopt one of the reform plans we'll look at.

Our local, state, and federal governments are primarily supported by three types of taxes… income
taxes, sales taxes, and property taxes. There are also various tariffs and product specific taxes like
gasoline taxes, but for the sake of our discussion those can be classified as sales taxes.

Bureaucrats and bean counters like to make the case that all three tax types are needed in order to
generate consistent revenue in spite of fluctuations in the economy. However, many of the reform
proposals floating around would totally eliminate one of the three. So which one would you abolish?

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?

Taxing spending has the potential of decreasing consumption. Sales tax increases can harm
consumer driven businesses in the short term, but can also have a positive impact by increasing
savings rates as purchases are delayed. This could provide more capital for expansion of the
economy.

Personally, I feel that property taxes are the cruelest tax. It's bad enough to pay taxes on what you
earn and what you spend, but at least once you pay the tax, the government can't come back for
more… unless you earn more money or buy something else. With property tax it's different.

You work hard, raise your family, and along the way finally pay off the mortgage on your home. You
own your home… it's yours! Well, not exactly. With a property tax reappraisal virtually every year, the
value of your home rises on paper and every year the taxman asks for more.

We've all heard stories about folks on fixed incomes due to retirement, disability, or illness who have
to give up their homes because they can't afford rising property taxes. It happens. Well there's good
news! There's something going on in Georgia that may force the issue on property tax reform.

A group of rural Georgia school systems have filed a lawsuit contending that the way education is
funded in Georgia is unfair to poorer school districts. If victorious in their suit, one possible outcome
could be the elimination of funding education through the local levy of property taxes.

In the 1980's Georgia attempted to solve the problem of inequitable funding by implementing the QBE
(Quality Basic Education) funding mechanism. In a nutshell, so called “richer” school systems had to
share the wealth with their poorer counterparts.

While it was a noble attempt to solve a serious problem, the program has been a source of constant
friction. Why should Cartersville residents, through a smoke and mirrors funding system, be penalized
to help shore up school districts in south Georgia that won't levy a sufficient millage rate to fund their
own systems?

Not waiting on the outcome of this court case, a group of legislators is pushing ahead with a plan to
eliminate the funding of education through property taxes. Instead, they propose to fund school
systems by raising the state sales tax by three cents.

The proponents claim that the tax would be fairer because everyone - not just homeowners and other
property owners - would foot the bill. Also, they point out that tourists and visitors passing through the
state would now help fund our school systems.

A series of hearings around the state is underway and House Majority Leader Jerry Keen (R) is dead
set on putting a required state constitutional amendment on the November 2006 ballot. Eleven other
states are at various stages of considering similar measures.

Though there are still a lot of details to be worked out in the Georgia proposal, school boards and
superintendents are already lining up to stop Keen and company. The biggest concern expressed is
that sales taxes fluctuate too much year-to-year to be a reliable funding source. Supporters of Keen's
plan believe a built-in reserve surplus could even out the up and downs.

Then there's the question of election year politics. Whether a far-reaching proposal like this would
make it on the 2006 ballot during a gubernatorial election is debatable. Governor Sonny Perdue is
undecided on the issue as is Democrat candidate for governor Cathy Cox. Democrat Lt. Governor
Mark Taylor, also seeking the top seat, has publicly come out against the plan.

So while the wheels of big government turn slowly, at least they're turning. In addition to Keen's
education funding reform plan we also get to debate the Boortz/Linder national Fair Tax plan, and other
state level proposals that would cap property value reassessments. The only problem is we can't adopt
them all.