A proposal to drastically cut or abolish state income taxes in Georgia and replace them with higher sales taxes would raise taxes on up to 80 percent of Georgia taxpayers and spike Georgia's average state and local sales tax to as high as 14.5 percent, according to a new study.

The study, by the Georgia Budget and Policy Institute, predicts that a seismic shift to a sales tax-dependent system would destabilize the state's finances, harm businesses and communities and undermine the state’s economy.

The study analyzes outcomes for other states that cut their income taxes and estimates the potential impact of legislation filed this year to cut or eliminate the source of half of Georgia's revenue, the income tax.

“The surprise here is how extreme the tax shift is from Georgia’s wealthiest taxpayers to its low- and middle-income families,” said GBPI tax policy analyst Wesley Tharpe, who wrote the study.

The study predicted that swapping the income tax for higher sales taxes would require a combined state and local sales tax rate as high as 14.5 percent to recover the lost revenue. In addition, slashing income taxes would probably lead to spending cuts in areas such as transportation, education and public safety.

Shifting to a sales tax would also hurt many Georgia businesses, especially small ones, the study forecast, as drastically higher sales taxes would increase their costs and shrink their customers’ pocketbooks.

A state legislative committee held the first in a series of hearings in July to study the effects of shifting from Georgia’s current tax system to one based almost entirely on the sales tax. Two bills are set to be considered by the Georgia General Assembly when it convenes next January, although the proposals to date lack key details.

“As these plans add specifics we’ll continue to update our estimates,” Tharpe said. “But this impractical idea isn’t new, so chances that we’ll see some wrinkle that mitigates the problems identified in the study are slim to none.”

To download the study, visit www.gbpi.org.

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