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Tax Reform Initiatives: The Impact According to Research

Tax Reform Initiatives: The Impact According to Research. Ken Heaghney. Columbus, Georgia December 11, 2007. Outline of Tax Reform Strategy. Eliminate all property taxes Broaden the sales tax Remove current sales tax exemptions Does this include business exemptions?

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Tax Reform Initiatives: The Impact According to Research

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  1. Tax Reform Initiatives: The Impact According to Research Ken Heaghney Columbus, Georgia December 11, 2007

  2. Outline of Tax Reform Strategy • Eliminate all property taxes • Broaden the sales tax • Remove current sales tax exemptions • Does this include business exemptions? • Add services to the sales tax base • How aggressive in taxing services? • Replace lost property tax revenues with grants • Provide a tax credit for low income household • ESPLOST: half for operations

  3. Agenda • Background data on property tax and sales tax revenues • Some preliminary data on winners and losers • Estimating the net fiscal impact

  4. Georgia Local Government General Revenues = $19.4 Billion Source: U.S. Bureau of the Census

  5. Total Property Tax Collections = $9.6 Billion $Millions

  6. Net of Offsets, $9.0 Billion in Property Tax Revenue Must Be Replaced Offsets Assessor Costs Property Tax Deduction HTRG Net = $9.0 Billion Total Property Taxes

  7. State and Local Sales Tax Revenues - 2006 - ($Billions)

  8. Agenda • Background data on property tax and sales tax revenues • Some preliminary data on winners and losers • Estimating the net fiscal impact

  9. Who Pays the Property Tax? Revenue by Property Class ($Millions)

  10. Summary of Current Sales Tax Exemptions ($Millions) Total = $10.9 Billion

  11. How Does Broadening the Base Change the Sales Tax Burden? Low High Source: Fiscal Research Center

  12. Key Issue – Property Taxes are Deductible • In 2006, itemized deductions related to property tax reduced Georgia taxpayers income tax liability: • Federal liability reduced by $930 million • State liability reduced by $105 million

  13. Agenda • Background data on property tax and sales tax revenues • Some preliminary data on winners and losers • Estimating the net fiscal impact

  14. Issues in Broadening the Sales Tax Base • Measurement – We lack good data to precisely measure the expected revenue from a broader base. • Several methods used to narrow the potential range • Policy - How aggressively do we want to tax services and eliminate exemptions? Rent? Health care? Business? • Scenarios created to identify revenue impacts from different strategies • Compliance and Avoidance – It may be difficult to collect from some service providers and some consumers may increase cross border & internet shopping. • Estimates should be considered upper bound impacts

  15. Using State GDP Data to Estimate the Sales Tax Base (Laffer Method) Total State & Local Sales Tax Revenue $22.2 billion This method shows a net increase in tax revenues

  16. Alternative Estimate Using Laffer’s Methodology Total State & Local Sales Tax Revenue $16.1 billion This method shows a net decrease in tax revenues; estimate includes about $5.2 billion on new homes & health care services

  17. Added Revenue from Eliminating Current Exemptions on Goods (in $millions) Alternative 1 Alternative 2 Alternative 3 Alternative 4 Source: Fiscal Research Center

  18. Added Revenue from Taxing Additional Services (in millions) Alternative 1 Alternative 2 Alternative 3 Source: Fiscal Research Center

  19. Summary – Added Revenue from Broadening the Sales Tax Base (in millions) Benchmark: exempts most B2B sales, tax household purchases of services except health care and education. Aggressive: add services provided to businesses, 30% not taxed. Source: Fiscal Research Center

  20. Summary of Alternative Estimates ($ billions) Total Sales Tax Revenue Total Required to Breakeven Estimates indicate that a very aggressive approach to eliminating exemptions and taxing services is required to fully replace all property tax revenue

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