2nd UPDATE

Cagle Rolls Out Plan To Chop Income Tax Rates By 10%

By Dick Pettys
InsiderAdvantage Georgia

2nd Update at 5:20 p.m. adds additional comment from Cagle, reaction from House. New material highlighted.
Updated at 3:54 p.m. with Cagle announcement, Senate committee proposal.

(3/18/08) Lt. Gov. Casey Cagle and his Senate allies rolled out a tax cut package Tuesday that guts the Speaker’s plan to ax the tag tax and substitutes, instead, a 10 percent reduction in income tax rates over five years. House Majority Leader Jerry Keen said an hour or so later that the proposal "may be the poison pill that kills real tax reform this year."

The only aspects of Richardson’s proposal that would remain intact would be the elimination of the state’s quarter-mill property tax and a freeze on property reassessments. But even that proposal would undergo some change. Instead of freezing residential assessments at 2008 rates plus an annual increase of up to 2 percent and commercial at 2008 plus up to 3 percent, the Senate proposal would freeze both at the government inflation rate - a higher figure.

New to the package under the Senate proposal - a “TABOR”-like proposal that would rein-in state government spending and direct money in excess of a formula (based on the inflation rate and population growth rate) to education, the rainy day fund and then to taxpayer refunds.

The package was rolled out in two parts: in the Senate Finance Committee, where the major changes were made to Richardson’s House-passed constitutional amendment, and in a news conference later by Cagle and more than 20 members of the Senate, where he announced the separate income tax plan, which would be a statutory change needing 91 votes and veto-able by the governor.

Richardson was not at the press conference but he did attend the Senate Finance Committee meeting, where he called the changes “an embarrassment, if that’s what’s going to be offered” and said it’s not close to tax relief.

He chided the panel for giving him only a few moments to review the proposal and said he would never allow a House committee to do that to them. After that, Sen. Chip Rogers said he would postpone action on the bill until Wednesday to let the Speaker and his members study his proposed substitute.

At a news conference moments later, Cagle defended his income tax reduction plan as the targeted tax relief he had said he was seeking, though it appears to hit a broader group of people, and said it is “fair and equitable to all.”

Under the proposal, the state would reduce the income tax rates by 10 percent over five years beginning July 1, 2008. Under that plan, the maximum 6 percent tax rate would drop the first year to 5.88 percent and so on until it reach 5.4 percent.

The first year’s tax loss would be $215 million. The entire cost would be $1.2 billion.

Last week, Cagle joined Gov. Sonny Perdue in throwing a one-two punch at the House-passed tax plan. The governor called it risky political pandering and the lieutenant governor declared it didn't provide the right kind of help at the right time.

Under his plan, Cagle said, "July 1, there would be an adjustment to withholding and there would be more money going into employees' pocket each week ... (and) this is every rate, so everyone is going to get the proportionate amount of reduction, not just at the top end of 6% but also at the 3%, 4%, 2%, whatever the case may be ... It is immediate, it is broad-based, it is fair."

Asked how a broad tax effort of that sort could be considered "targeted," he said: "My points have been very consistent, and that is that we do need targeted tax relief that does stimulate the economy, and I do believe that this - although it is broad in the context that every taxpayer will benefit - it is targeted to to personal income and relief, and tax cuts to personal income."

At their news conference later, Keen and House Speaker Pro Tem Mark Burkhalter said they stick by the House plan. "We're obviously disappointed that Casey Cagle and the Senate didn't want to give Georgians a chance to vote (on eliminating the tag tax.)"

Burkhalter said, "In this economy, Georgians not only want but need tax cuts, but most of all they want and need tax cuts that they can understand. They don't don't need to go hire H & R Block to figure out how to get a tax cut ... The bottom line is, people don't trust that a tax cut is a tax cut unless you actually eliminate the tax."

In the Senate Finance Committee, Richardson said the proposed Senate substitute to his HR 1246 "bears no resemblance to the tax reform we have looked at for three years. It is an embarrassment, if that is what is going to be offered - not to give the tax relief to the people of Georgia that they deserve. The people of Georgia deserve tax relief ... this is not close."

Cagle did not say what House bill now in the Senate he would use as the basis for the income tax cut.

Asked if he had discussed his proposed tax with the governor, he said: "The governor and I have had conversations about this and I would let the governor speak for himself. There was some element of concern on his part but I think he understands the dynamics of the process as we speak."