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Economists give tax-cap amendment thumbs up

Posted: June 17, 2014 - 11:07pm

ATLANTA — The campaign to win voter support for capping the state income tax has begun with the endorsement of 17 economists last week.

Voters will decide on their general election ballot whether to prohibit the legislature from ever raising the tax rate beyond the current 6 percent. Grassroots support for the limit has been slowly building since the General Assembly passed the amendment with a two-thirds majority of the House and Senate.

So far, no one can point to any organized opposition, although an Atlanta think tank oriented toward increased social-services spending has warned against passage.

The economists backing the measure are current or retired college professors and mostly members of the Southern Economic Association. Two past presidents are included, Paul Rubin of Emory University and Dwight Lee, who is retired from the University of Georgia.

Other academic economists are also sympathetic but did not step forward. After all, a limit on taxes could ultimately crimp college funding.

Generally, economists see that lowering expenses for businesses and individuals as freeing up money for investment and job creation. They also agree with the amendment’s sponsor, Senate President Pro Tempore David Shafer, R-Duluth, who prefers eventually shifting more of the tax burden to sales taxes.

He notes that even though the rate has remained the same for decades, the overall state budget has grown faster than the inflation rate and population, meaning the amendment won’t crimp government services. Other taxes and fees can still be hiked.

“If you’re attracting new business and see existing businesses expand, that in itself will give you new revenue,” Shafer said.

So why ask voters to limit the rate if he hasn’t changed in years?

To provide certainty to businesses. All neighboring states have lower tax rates, but none of them have a constitutional maximum.

“There is nothing to say that those cannot be raised tomorrow,” he notes.

Asked if maybe the amendment might boost the turnout of conservative voters, the senator said his goal was one thing: “My motive was to cap the income tax rate.”

Certainty has a powerful effect on business, according to Jeffrey Dorfman, a professor of agricultural and applied economics at the University of Georgia.

“I have done some research showing that government credibility is a key in attracting jobs. Businesses want to know that government will keep its promises. This is a way to establish some credibility,” he said.

Dorfman isn’t a Pollyanna.

“It won’t mean a business boom, but it might help steer some businesses and jobs our way from neighboring states,” he said.

Wesley Thorpe is a policy analyst in the think tank, the Georgia Budget and Policy Institute, warning against the wisdom of Shafer’s proposal.

“Our view is that it’s just risky to put these types of things in the state constitution,” he said.

Recessions, emergencies and new federal mandates are reasons the legislature might want the option to increase the income tax rate, he said. Plus, there’s the possibility there could be public agreement that problems such as troubled schools or traffic congestion warrant additional taxes. Seeing more than a dozen economists back the amendment doesn’t impress Thorpe.

“It’s certainly possible to find some that think cutting income taxes would boost the economy, but you can find just as many nationally who say that it has no effect,” he said.

If this flies, Shafer wants to ratchet down the income tax rates while keeping spending to a bare minimum.

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