The GREAT Plan

Seems kind of odd that anything associated with tax reform would receive GREAT as its acronym, but here we are. GREAT originally stood for Georgia’s Repeal of Every Ad Valorem Tax but now only includes a repeal of Education Ad Valorem taxes. I’m not sure if school property taxes are the only taxes being repealed for practical reasons or because House Speaker Glenn Richardson liked the acronym so well he didn’t want to change.

The plan which originally proposed all property taxes to be repealed now only calls for the elimination of school property taxes. In order to recover the lost revenue needed to run local school systems, consumers would have to pay sales tax on groceries and services (both currently exempt). As Richardson explains, this would not result in a tax increase but a tax shift. Even if this is true, why would lawmakers want to impose this change?

Historically speaking property taxes are the most hated taxes of all (even income taxes). However, the reason for the hatred often has nothing to with the tax itself.

The first is that for years taxpayers have been subject to a ‘backdoor’ tax. That is that while tax or millage rates remain stable, the tax is increased because of inflation or higher appraised property values. This concern was addressed in Georgia in 1999 by the passage of Act 431. However, taxpayers either still feel ‘pinched’ by indirect tax increases or old habits are hard to break and once you develop hatred for a tax you always harbor resentment for that tax.

The second complaint is largely psychological. Many people who are subject to property taxes must pay the full amount due at one time in lump sum. Certainly, some homeowners have their taxes escrowed along with the mortgage payment. But this still leaves a larger number of people making large property tax payments than people who are required to pay income taxes in lump sum. And everyone knows when you actually sit down to write that check you know exactly how much you are paying in taxes and you don’t like. However, if every time you bought groceries, you were charged a sales tax in lieu of the property tax, over the course of a year you may not even know how much you paid. In fact paying an extra $20 per week instead of writing one $1,000 check annually may not even be noticed by many consumers.

This is one of the reservations I have about the GREAT Plan. Anytime taxes are broken down into such incremental amounts that they aren’t noticed, taxes tend to creep upward. I hope to blog fully on this subject in the future but mandatory withholding of income taxes were never intended to be permanent but Congress recognized that revenues were up in periods of mandatory withholding. It’s like buying that junk from late night infomercials: $120 is a rip-off but 4 payments of $29.99 for the same piece of trash that probably won’t work is very palatable.

It’s for this that I’m not sold on Richardson’s plan and all its GREATness.