Not so easy

AT ITS inaugural meeting on July 28th 2010, the Special Council on Tax Reform and Fairness for Georgians—an 11-member body created two months earlier by Georgia's legislature to study and recommend changes to the state's revenue system—got some simple, sound instructions from three of Georgia's leading politicians. All the committee had to do, said these august men, was create a new taxation system that promoted job growth and economic prosperity. It was told to make the new system fair, transparent, easily complied with, “small-business-friendly”, and capable of providing a stable, balanced and reliable revenue stream, while not cutting services.

Six months later the council did, in fact, recommend a number of striking changes to how Georgia taxes its citizens, consistent with its overarching goal of “changing the philosophy of taxation from income to consumption”. They recommended lowering the personal-income tax rate from its present top level of 6% down to 4% by 2014—the better to compete with its neighbours Tennessee and Florida, which levy no personal income taxes. Out went a host of credits and exemptions. In came some new taxes on goods and services and some much needed modernisation: instead of the current hodgepodge of telecoms taxes and fees created pre-internet, the council recommended a simple 7% excise tax on all communications services.

The council did exactly what the politicians told it to do—whereupon the politicians discovered a host of pressing other business. A vote on a big batch of reforms, most notably a proposal to reduce the personal-income tax rate to 4.5%, was postponed last year. When Georgia's legislature convened this January, leaders in both chambers promised to tackle tax reform.

And indeed, on March 22nd, a tax-reform bill that made several changes to Georgia's tax code passed the Senate 54-0, just two days after passing Georgia's House 155-9. Alas, it was more jumble than tackle, stuffing as it did a mixed bag of little tweaks into an omnibus bill. Some measures are welcome. Georgia ended its tax on energy used in manufacturing. Eliminating a cushy subsidy for Delta Air Lines, headquartered in Atlanta, ends a particularly egregious case of unnecessary corporate welfare. Taxing online sales is fair and lets the state capture millions of dollars in otherwise lost revenue. Other measures are less sensible: the bill retains Georgia's politically popular but fiscally dubious sales-tax holiday. The Georgia Budget and Policy Institute, a left-leaning think-tank, says the bill would deprive the state of $63m in revenue over the next three years, but would probably increase revenues in the long-term. Even so, both they and their right-leaning counterparts at the Georgia Public Policy Foundation greeted the bill with a resounding shrug.

Compared with much of the rest of the country, however, Georgia has not done badly. Jon Shure, who studies state taxation for the Centre on Budget and Policy Priorities, a think-tank based in Washington, DC, says that state taxation systems are overdue for reform. They tax goods more than services, even as spending has moved toward services. Some, such as Mr Shure, believe top rates are too low; others think rates are too high but the base is too narrow. Either way, reforming taxes requires instituting some while cutting others. The latter is easy. The former is not.