6th UPDATE

Speaker Backs Away From Tax Swap; House Will Vote Wednesday On Axing Tag Tax, Freezing Property Assessments

6th Update at 4:20 p.m. adds comment from Alan Essig. New material highlighted.
5th Update at 3:55 p.m. updates throughout with endorsement from Grover Norquist, Democrats assessing what position they will take.
4th Update at 1:39 p.m. addes Majority Leader's comment in two places.
3rd Update at 10:34 a.m. adds comment from Senate President Pro Tem.
2nd Update at 9:39 a.m. adds additional detail.
1st Update at 9:28 a.m. adds details of new plan, House Rules action.

By Dick Pettys
InsiderAdvantage Georgia

(3/4/08) Maybe Speaker Glenn Richardson has finally put together a tax package that will clear the House, but we won’t know that until tomorrow’s showdown. House leaders said they weren’t counting noses ahead of time, just relying on the latest proposal - to eliminate the car tag tax, freeze property assessments and limit local government spending - to sell itself.

The proposal swept into the spotlight Tuesday with stunning speed. Abandoning his previous proposal, Richardson previewed the new proposition to the House GOP Caucus at an early morning meeting, then presented it to the Rules Committee at 9 a.m. Within minutes, it had been voted onto the debate calendar for Wednesday, hailed as the largest single tax cut in Georgia history - if lawmakers and then the voters approve.

In short order, it gained the approval of Grover Norquist, who trashed the Speaker’s previous proposal to eliminate residential school property taxes in favor of an expanded consumer sales tax and to restore the state tax on groceries. That’s gone from the newest plan.

“Based on the elements of this plan in its current form, we conclude that this legislation is good news for taxpayers because it leaves more money in their wallets,” Norquist’s group, Americans for Tax Reform, said.

Also endorsing the plan was Americans for Prosperity, a free-market grassroots group.

Like the previous plan, this one will require 120 votes to pass, which means Richardson will have to lure a certain number of Democrats over to his side. His Republicans only hold 107 of the 180 seats.

Democrats ensured Richardson would have to abandon the previous proposal by announcing last week they planned to bloc vote against it. In addition, a whip count among Republicans showed that not all members of the GOP caucus were on board

The letter from Norquist’s group may help remove any lingering doubts about the plan among reluctant Republicans. But what will the Democrats do on Wednesday?

Rep. Calvin Smyre, the House Democratic Caucus chairman, indicated Tuesday they’re still trying to figure that out.

“We have not aired it out or taken a position yet,” he said. One issue, he said, is whether the state can afford to foot the bill for eliminating the car tag tax. The plan calls for the state to ensure that local governments continue to receive the revenue stream they rely on from that source.

The plan calls for eliminating half of the tag tax by July 1, 2010 at a cost to the state of $329.5 million. The tax would be fully eliminated July 1, 2011 at a total cost of $672 million.

“In 2011, you have a $700 million hole to fill,” said Smyre. “Either the revenues have to grow tremendously for that hole to be plugged or we’d have to appropriate that.”

That means, said House Democratic Leader DuBose Porter, the Legislature may have to cut services at some point in order to pay for the tax relief.

Alan Essig, executive director of the nonprofit Georgia Budget and Policy Institute, also argued separately that the proposal will leave holes in the FY 2010 and FY 2011 budgets without providing any alternative funding source to fund state programs, such as healthcare and education.

"It will be impossible to balance the state budget without deep cuts to education, healthcare and criminal justice," he said in a press release. "Such a major tax cut at the same time as a slowing economy and revenue growth is perhaps the most fiscally irresponsible policy proposal of the past 30 years."

Republicans contend that won’t be a problem; natural growth in the state budget and a steady increase in population will make the numbers work. More on that in a bit.

So which way are Democrats leaning, Smyre was asked.

“We’re in kind of a crosswind. It’s been all over the radar. I’d like to leave it like that right now,” he said.

The predicament for Democrats is that if they are successful in blocking the tax reform proposal, they give Republicans a potential scorecard vote to use against them in the upcoming legislative elections.

Republicans, meanwhile, were busy promoting the latest tax proposal as a major boon for Georgia taxpayers.

"We believe it's a responsible tax cut, it's necessary and it's the right thing to do," House Majority Leader Jerry Keen said in an afternoon press briefing. He called it a state-level economic stimulus package that would provide the "biggest tax relief in the history of Georgia."

Here’s how the new plan compares with the previous one.

* The previous plan would have eliminated the car tag tax, shifted the school property tax on homesteads to an expanded sales tax, eliminated back-door tax increases caused by unrestrained property reassessments and limited the growth of local government spending to rein-in front door tax hikes.

* The new version contains the same elements except for the school property tax shift and the expanded sales tax.

Some specific details of the new plan:

Property assessments would be frozen at 2008 levels to prevent so-called “back-door” tax increases through assessment creep, except that residential property could be increased up to 2 percent a year and non-residential up to 3 percent a year.

The caps on revenue growth for local government (essentially, spending increases) would be figured on a 2008 base plus the governmental inflation rate. For the last five years, the average annual increase has been 5.05 percent. Local governments wishing to increase spending above the inflation rate could do so, but only with voter approval in a referendum.

Like the previous version, this one includes a $10 fee on car tags to help fund a new statewide trauma network.

While the new version will relieve some concerns of critics, it may not satisfy local officials who still will be faced with limits on how much new spending they can embark upon each year.

Senate President Pro Tem Eric Johnson said that may be a problem if the measure clears the House and reaches the Senate.

"I'm not sure the tax freeze bill gets two-thirds vote (in the Senate) with the millage cap they've put on it," he told reporters.

Other than that, however, he said he would reserve judgment. "The GREAT plan started changing every couple months, then it started changing every couple weeks, then every day, now it's changing by the hour. I don't see any need for the Senate to comment on it 'til it gets off the floor, because it'll probably change some more on the floor."

As to whether the measure will require state budget cuts, House leaders said Richardson is counting on normal increases in state revenues over time to absorb the expense. Keen said during the afternoon press briefing that growth in the economy and the population would allow the state to absorb the hit, just as it did in the 1990s when the state removed the grocery tax.