The Smyrna Republican told the business group gathered for lunch at the Smyrna Community Center on Thursday such a change would need to be revenue neutral. He believes the shortfall could be made up by increasing the 4 percent state sales tax rate to 6 or 7 percent.
But there are challenges to that proposal.
Hill described how thick the book was listing all the loopholes to the tax code, given to him when he took office for the first time last year.
“You cannot eliminate the income tax without dealing with those loopholes because if you’re going to move towards a consumption tax, you’re going to have to close those loopholes,” he said.
While the state sales tax is 4 percent, most of it is not collected because there are many exemptions from food items at grocery stores to professional services such as lawyers and architects.
“And so, rather than hitting them with an income tax, which we obviously currently do, we would have to have a system by which we would collect monthly a sales tax,” he said.
Hill related how he asked his barber if he would consent to the change, since barbers don’t pay the sales tax either. His barber supported the proposal.
“Those are the kinds of things you would have to do if you were to look at taking our 6 percent income tax to zero,” Hill said. “You’ve got to expand the revenue base on the consumption side, which makes sense. Seventy percent of our economy is consumption-based, yet we only tax 30 percent of consumptive services and items — 30 percent of the items in our economy — so you’d have to expand the sales tax base and get rid of the loop-holes.”
Olens on board, Evans is not
Georgia Attorney General Sam Olens also called for eliminating the income tax when he spoke to the Cobb Republican Party last April, pointing to how Texas, which he called the most business-friendly state in the nation, doesn’t have an income tax. Georgia’s neighbors, Florida and Tennessee, don’t have one either. Olens said at the time that the Legislature, which convenes Monday, spends too much time on the “small stuff” rather than revising the tax code to promote job growth.
Yet state Rep. Stacey Evans (D-Smyrna), who attended the luncheon, has “great concerns” about the proposal.
“I respect Hunter Hill, and he is a good colleague, but when he called the sales tax on groceries a ‘sales tax loophole’ I have to admit I was a little taken aback by that because that’s how a lot of our families in Georgia are able to afford to eat, because they don’t have to worry about that extra sales tax, and eliminating the exemption on sales tax on groceries is a nonstarter in my opinion.”
Placing the sales tax on groceries would devastate families, Evans said.
“There are so many people who are living on the line in being able to put food on the table or not and maybe that 4 percent doesn’t mean a lot to some people, but it does to a lot of others, and we have to remember that when we’re making policy.”
Half now, half later?
State Sen. Judson Hill (R-east Cobb) this past summer chaired a Senate Fair Tax and Tax Reform Committee that explored cutting the income tax in half and moving to fully eliminate it and replace it with a broader consumption-based tax. Georgia is tied with South Carolina as having the highest income tax in the South, he said.
Yet North Carolina moved from a 7 percent income tax down to a 5.75 percent one without increasing its sales tax. Lowering the income tax, Judson Hill believes, raises more money.
“You incentivize job creation in an investment and you also collect sales tax from people that if you do increase the sales tax you’re collecting the sales tax from people who are not currently paying income tax,” he said.
Many people involved in the illegal drug trade don’t pay any income tax.
“But they would pay sales tax so they buy food and clothing and curtains and cars, they buy stuff,” he said. “We would collect those dollars and bring it in as
revenue and would benefit.”
With the short session, it will be difficult to pass legislation this year, but Judson Hill said he is committed to filing a bill in the 2015 session.
The state’s economic development policy is one where it has a certain amount of money it uses to recruit companies from out of state.
“That puts a great deal of weight and thought on government people to figure out who we’re willing to bring here,” Hunter Hill said. “Eliminating the income tax allows individuals to decide of their own free will to come here and move here and grow here and build here, and to me, that’s a better way to do it is to put the intelligence and the opportunity out there into the people as opposed to government officials.”