Georgia’s economic ranking relative to other states has become a central part of this year’s gubernatorial election. While we rank high in job creation, our unemployment rate has been the nation’s highest for two straight months. So it has been somewhat strange that our tax structure has been largely ignored in that debate. Gov. Nathan Deal touts the package of changes made two years ago. The little bit of tax talk coming from his Democratic opponent, Jason Carter, has amounted to a promise not to raise them, and perhaps to expand some business incentives to smaller firms. The Libertarian, Andrew Hunt, has talked about lowering the individual income-tax rate, but his impact on the race has been so negligible that he hasn’t even gotten the two leading candidates to address that idea.
Now comes a warning that perhaps tax policy ought to be more of a concern for Georgia than this election would have you believe.
The Tax Foundation today released its annual State Business Tax Climate Index, which looks at the entire tax structure of each state on the premise that the entire tax picture matters to companies and entrepreneurs, not just direct business taxes. And once again, Georgia lands in the bottom half nationally — this year, at 36th.
Before we continue, let’s get one thing out of the way: Taxes aren’t the only thing that matters to businesses. As the Tax Foundation’s report puts it:
“Other concerns, such as raw materials or infrastructure or a skilled labor pool, matter, but a simple, sensible tax system can positively impact business operations with regard to these resources. Furthermore, unlike changes to a state’s healthcare, transportation, or education systems, which can take decades to implement, changes to the tax code can quickly improve a state’s business climate.”
Not only that, but taxes are one easily identifiable way for those supplying capital or labor to compare one state with another. And even in a globalized world, the report says, state vs. state competition remains paramount:
“The Department of Labor reports that most mass job relocations are from one U.S. state to another rather than to a foreign location. Certainly job creation is rapid overseas, as previously underdeveloped nations enter the world economy without facing the highest corporate tax rate in the industrialized world, as U.S. businesses do. State lawmakers are right to be concerned about how their states rank in the global competition for jobs and capital, but they need to be more concerned with companies moving from Detroit, MI, to Indianapolis, IN, rather than from Detroit to New Delhi. This means that state lawmakers must be aware of how their states’ business climates match up to their immediate neighbors and to other states within their regions.”
On both of those last two points, Georgia is suffering. See this map:
Among our immediate neighbors, you’ll notice only South Carolina (ranked 37th) has a worse tax climate for business than Georgia does. And most of the other states that border Georgia are markedly better: Florida is fifth, Tennessee is 15th, and North Carolina is 16th after moving up a whopping 28 spots this year thanks to a wide-ranging tax overhaul. (Alabama is 28th.)
What’s more, other states with which Georgia is often compared also fared better: Texas is 10th, Colorado is 20th, Arizona is 23rd, and Virginia is 27th. We even fare worse than Midwestern states such as Indiana (eighth), Michigan (13th) and Illinois (31st).
Let me say that again: Our business tax climate is slightly worse than that of Illinois. And that’s without taking account of a decrease in taxes, which were raised in 2011, scheduled for 2015.
And we rank so low in spite of relatively good scores on corporate taxes (eighth) and sales taxes (17th). Our property-tax rank is middling, at 30th. But our unemployment-insurance tax puts us 36th, and most important, our individual income-tax ranking is poor at 42nd.
Not only does Georgia have a relatively high top marginal income tax rate at 6 percent. That rate also begins very low: at just $7,000 of taxable income for single filers. Consider where some other states start their 6 percent tax bracket: Arkansas $20,700; California $28,372; Connecticut $100,000; Kentucky $75,000; Louisiana $50,000; Montana $13,000; South Carolina $11,520; West Virginia $40,000. (Brackets are different for married couples in most cases, including Georgia.) The only other state to tax an individual’s 7,000 taxable dollar at such a high rate is Oregon, at 7 percent. Every other state is lower than Georgia’s 6 percent rate for that level of income.
Georgia Republicans want to pretend tax reform has been done, and Georgia Democrats would prefer not to talk about it at all if it means shifting toward consumption taxes, even if those are less prone to distorting economic decisions. But if our state’s economy is going to become indisputably strong, we’re going to have to address this issue.