The Speaker’s Tax Proposal
There is a major change under way in the political structure designed to govern Georgia. It starts with taxes, but it goes much further than mere taxation.
Glenn Richardson, Republican from Hiram, near Dallas, Ga., is Speaker of the Georgia House of Repre-sentatives. He holds one of the three most powerful political positions in the state, the other two being the Governor and Lieutenant Governor.
The next 2008 legislative section in Georgia promises to be a barn-burner. Richardson’s management style of “Lead, follow or get out of the way” will produce lots of fireworks.
Richardson wants to change the present constitutional system for collecting taxes in Georgia; this would have the effect of increasing the power of the Speaker of the House of Representatives and decreasing the power of the Governor and the state senate in governing our state.
Richardson talked to me about his tax proposals in an interview in July.
The property tax method of paying local taxes was established many years ago when Georgia’s economy was 80 percent farming and manufacturing. That has changed so that nearly 80 percent of the state’s economic activity is now in the service sector.
In short, Richardson believes that taxes should shift away from property to the service sector. He is proposing a retail and services sales tax.
Some political background here: The Speaker’s job is powerful because it is almost a job for life. The Governor and Lieutenant Governor have to run for office every four years and be voted in by the citizens of Georgia. Richardson’s position, as Speaker, is determined by members of the Georgia legislature, not by citizens.
The Speaker appoints committee chairs and controls other coveted positions so that almost no members of the Speaker’s party seeking such appointments will vote against him. The only available political method to remove the Speaker is for the local citizens of Paulding County (Richardson’s political district) to remove him when he runs for the statehouse every two years.
If the Speaker of the House of Representatives has a safe seat, he can serve many years, as did former Speaker Tom Murphy, who was finally retired by the voters of Haralson County after serving many, many years in the legislature and in the Speaker’s position.
Having such a safe political position gives Richardson a platform to suggest bold political changes, such as his plan to eliminate property taxes, which would be replaced with a statewide 4 percent sales tax.
Called the “4 PLUS 4 = 0” tax, this would eliminate all property taxes for cities, counties and schools. It would apply a 4 percent sales tax on all services and other dollar-for-dollar exchanges and transactions, including food, legal services, accounting services, healthcare, pest control, electrical utilities and all other business-to-business transactions.
The plan would also drop state income taxes from 6 percent to 4 percent. Thus, 4 percent sales tax plus the 4 percent income tax equals zero property taxes, providing the 4 PLUS 4 = 0 a name.
Under Georgia’s present tax system, county commissioners, mayors, city councils and school board members levy property taxes and apply these revenues to local needs. If citizens don’t like how they spend this revenue, these local government officials can be voted out of office. Under Richardson’s plan, the state of Georgia would eliminate this property tax system and, in exchange, collect all taxes from sales and income. The state would then parcel out tax revenues to each county, city and school system.
Richardson promises that, at first, all government entities would receive the same amount of revenues as under the present system. Later, the state would “adjust” sales tax revenues to fit each local system’s needs, he says.
Presently there is a special legislative committee studying this plan; the committee will present a final proposal to the Georgia House of Representatives early next year. Since the right of local governments to control local taxes is specified in the Georgia Constitution, any change would require a constitutional amendment.
According to some local sources, there would be no sales tax exemptions in the 4 PLUS 4 = 0 plan, not even the present sales tax exemption on food. There would be an exception for nonprofit hospitals and a somewhat different approach for farm-related products such as timber and cotton. Prescription drugs, interstate commerce and products of manufacturing companies would not be included in the plan – benefiting entities like Delta Air Lines or Lockheed Martin.
People in a low-income bracket determined by the state would receive a tax refund on the 4 percent tax on food and other grocery items when they file their state income tax. Those living in Georgia illegally would not get this refund, because they would not be able to file income tax.
Will the 4 PLUS 4 = 0 system eliminate the need for local school boards, county commissions and city councils? After all, the main reason those officials are elected is to create local accountability for local services, such as garbage pickup, emergency response, fire protection, school district services and dozens of other needs.
In answer to that question, Richardson says that there will still be a need for these entities, because they will decide how to spend the revenues the state will give to each county, city and school system.
Businesses already pay 40 percent of all state and local taxes, and there is a concern that an additional four percent sales tax will be an additional burden on the business service sector, which makes up 80 percent of the businesses in the state.
Richardson says that the 4 percent is only a pass-through. People who use the services will still pay the tax, and businesses will only collect the tax. Accountants might disagree, because the tax will show as an expense on a business’s general ledger, and could reduce profits from a normal company.
Richardson says he is more than willing to talk about the new taxing system and its effects on specific groups and industries. For instance, Medicare will not pay the 4 percent tax for senior citizens. This will have to be addressed.
There are questions, of course, on how will the sales tax be distributed, since the metro area counties generate most of the state’s sales tax income, and small counties in Georgia won’t have sufficient retail sales to make up for property tax income that will be eliminated. How will this transfer of taxes from larger wealthier communities to poorer counties affect the faster-growing communities such as Cobb, which might need the sales tax to fund growth problems? These questions and many others make the proposal a work in progress.
Confused? Let’s add to the confusion.
Richardson plans to ask voters to approve still another important constitutional amendment concerning how to fund transportation on the same ballot as 4 PLUS 4 = 0.
He wants to simplify the fuel tax amendment by asking voters to approve another constitutional amendment asking for a flat 30-cent tax on motor fuel, to replace the percentage system in place today. The exact dollar or penny amount will be determined before it is placed on the ballot.
The Speaker is rejecting a plan presented by a group including the Metro Atlanta Chamber, the Atlanta Regional Commission and some local governments in South Georgia, to give two or more counties the authority to band together and give citizens a chance to vote on a special purpose local option sales tax to fund local transportation projects. Richardson believes negotiations between cities and counties on how to spend local sales tax dollars would break down. He believes the state is in a better position to decide how to fund overall transportation projects in Georgia.
Soon, Georgia citizens will have two constitutional amendments proposing sales tax increases. One amendment will be for an addition to the motor fuel tax, and another for the Speaker’s 4 PLUS 4 = 0 proposal.
The 4 PLUS 4 = 0 is not a tax reduction, but a tax shift, from property owners to business and to people who purchase services. Business will collect the tax; but, as noted before, will have to place the tax as an expense on each individual business’s general ledger, potentially lowering operating profits.
But the proposed tax would also represent a shift in power from city and county governments and school boards to the State of Georgia. According to Georgia’s constitution, all taxing proposals must originate in the House of Representatives. Under this plan, the Speaker of the House of Representatives will gain more power than ever.
With the state collecting all the tax revenue, this would raise the question of whether we need local mayors and council members, county CEOs or commissioners or school board memberss.
For that matter, with so much power residing in the House of Representatives, would we even need a Governor or Lieutenant Governor, except as ceremonial positions?
Under the 4 PLUS 4 = 0 plan, Richardson would make the Speaker’s office the most powerful position in Georgia.
Let’s assume that Glenn Richardson is skillful enough to implement his tax plan in such a way that he would make all city and county employees, not to mention teachers and ordinary citizens, very happy.
But would the next Speaker, whoever that might be, be able to pull that off? The plan would concentrate a great deal of power in one position.
Remember, the Speaker’s position is determined by the members of the House of Representatives, not by the general public. These House members are beholden to him for their positions. We could easily get stuck with a bad leader, and Georgia citizens would have no way to get that leader out of office.
This is a major danger in this proposed constitutional amendment and one that should be considered in the overall proposals.