As the current economic storm continues to batter state budgets, policymakers in numerous states are continuing to talk of raising taxes to help mitigate cuts in state services.  In Maryland, lawmakers are debating an extension of the state’s temporary “millionaires’ tax,” while a new policy brief out of Georgia proposes to eliminate an unwise (and rare) deduction currently only offered in just seven other states — Arizona, Hawaii, Louisiana, Oklahoma, New Mexico, Rhode Island, and Vermont.

Maryland's legislature is currently considering whether to extend a temporary "millionaires’ tax" enacted as part of a major 2007 tax reform effort. ITEP staff testified Thursday at a hearing of the state House Ways and Means Committee. ITEP's testimony highlighted several important details, such as the fact that the millionaires’ tax modestly reduces the overall unfairness of Maryland's tax system. With the tax in place, low-income families still pay more of their income in Maryland taxes than millionaires must pay — and if the tax is repealed, this inequity will become even worse.

The testimony also explains why claims by anti-taxers that millionaires have fled the state in response to the millionaires’ tax are unfounded. As ITEP's analyses have shown, the primary cause of the decline in the number of Maryland millionaires in the past year is that they stopped being millionaires due to the recession.  The claim that the decline in the number of millionaires is due to the high income tax would be news to lawmakers in Utah (the only other state in which there is publicly available data on the change in the number of millionaires between 2007 and 2008). In the same year that Maryland lost 30 percent of their millionaires, Utah lost 60 percent of theirs. And while Maryland hiked their income tax on wealthy taxpayers the previous year, Utah cut theirs.

In Georgia, some attention is beginning to be paid to a progressive idea passed by the New Mexico legislature just last week.  On Thursday, the Georgia Budget and Policy Institute (GBPI) released a brief explaining why the state’s deduction for state income taxes paid — which costs the state $450 million each year — should be eliminated to help fill the state’s budget gap.  The vast majority of states already disallow this deduction (which originates from federal tax rules) in order to avoid the bizarre, circular situation in which one’s state tax payment can be used to reduce their state taxes.  

Finally, a new report from the Center on Budget and Policy Priorities (CBPP) helps put these developments in Maryland and Georgia into perspective.  The report notes that states have increased taxes by a combined $32 billion during the current recession.  In total, thirty three states have raised taxes to help fill their budget gaps, with twenty two of those having enacted “significant” tax increases, meaning increases that total more than 1 percent of their total revenues.  The report’s appendices provide an excellent summary of the multitude of state tax changes that have been enacted during these difficult budgetary times.

State lawmakers in Kansas, Florida, Georgia, South Carolina, and at least ten other states have attempted to advance tax cuts — frequently targeted at businesses — as a means of stimulating their economies.  In response to these types of proposals, this week the Center on Budget and Policy Priorities (CBPP) released a short report pointing out the futility of attempting to stimulate state economies by cutting taxes. The report explains:

“State balanced-budget requirements prevent states from stimulating their economies by cutting taxes. If a state cuts a tax, it generally has to make an offsetting cut to expenditures for a program or service in order to maintain balance. This spending cut is likely to reduce demand in the state just as much as the reduction in taxes may stimulate demand.  It is at best a zero-sum game, where the gains in one area are offset by the losses in another.”

Against this backdrop, there is little question that the proposals described below (as well as the proposal described in the Minnesota story from a couple weeks back) are doomed to fail, despite their political popularity among some groups.

On Tuesday, Florida Governor Charlie Crist used his State of the State address to voice his support for a 10-day sales tax holiday and a sizeable cut in corporate taxes.  The corporate tax cut Crist is seeking could include a one percent reduction in the state’s corporate tax rate.  Both of these proposals would force a reduction in state spending at the worst possible time.  And sales tax holidays, of course, have long been recognized by serious observers as little more than political gimmicks.

In Kansas, the state House of Representatives has passed an expansion of a tax break aimed at boosting employment in the state.  Of course, the revenue loss associated with expanding this break, were it to become law, would only make the legislature’s job of producing a balanced budget even more difficult.  And, as the CBPP explains quite well, the larger cuts in government services that would be needed to finance this cut would effectively cancel out any purported economic gains.

In Georgia, an op-ed by Sarah Beth Gehl of the Georgia Budget and Policy Institute (GBPI) points out the folly of another proposal that claims to offer help for the state’s economy.  Specifically, the proposal would eliminate the state’s corporate net worth tax.  As Gehl points out, “there is no evidence that ending this tax will incite businesses to come to Georgia.”

Some South Carolina lawmakers are making use of a similar logic, though their focus is on a somewhat longer-term initiative.  Their plan would phase-out the corporate income tax over the course of 20 years, with the hope of improving the state’s “economic competitiveness.”  An editorial published in The State this week points out the flaw in this plan:

“The theory is that the tax breaks will entice people to start and expand businesses and move jobs to South Carolina. ... But there's a limit to how much difference a lower tax can make when there's no market for a company's products or services. And the stimulative value is particularly questionable when the tax is relatively low to start with. That's why we never have been convinced that supply-side economics can work at the state level.”

State budget woes appear to be spurring an increasing amount of interest in re-examining state tax breaks.  The Governors of both Michigan and Idaho have taken steps to ramp up the scrutiny directed at their state’s tax breaks, while a new report out of Oklahoma and an editorial highlighting legislation in Georgia this week have urged similar actions.

In Michigan, the Detroit Free Press urged the adoption of Governor Granholm’s proposal to thoroughly analyze the merits of every tax break, and to saddle most breaks with sunset provisions that would force lawmakers to either debate and renew these breaks, or to let them expire.  This proposal would help to remedy the lack of scrutiny given to tax breaks because of their exclusion from the appropriations process.  Notably, the proposal’s use of sunsets as a mechanism for forcing review seems to resemble a law enacted in Oregon just last year.

In Georgia, the need for additional scrutiny of tax breaks is even more desperate.  Because the state lacks a tax expenditure report, Georgia lawmakers are not even aware of the full range and cost of special breaks that their tax system provides.  SB 206, which was endorsed by a Macon Telegraph editorial this week, would remedy this problem by finally requiring the creation of such a report.  The editorial rightly points out that the bill could be strengthened by requiring an analysis of each tax break’s effectiveness, but at this point, even simply producing a list of tax breaks and their costs would be a major step forward.  The Georgia Budget and Policy Institute has been pushing for the creation of such a report for many years.

Idaho governor Butch Otter has also shown some tentative interest in figuring out whether his state’s tax breaks are worth their cost.  While Governor Otter continues to hold out hope that the state’s revenues will rebound soon, he also recently directed the state’s Tax Commission to study sales tax exemptions in the event that closing some of those exemptions becomes necessary to fill the state’s budget gap next year.  If done carefully, the studies produced by the Tax Commission could provide a wealth of information on breaks that have so far received a relatively small amount of scrutiny.
    
The Oklahoma Policy Institute has also added to the progress being made on this issue with a new report outlining what should be done to scrutinize tax breaks in a systematic fashion.  Their report, titled “Let There Be Light: Making Oklahoma’s Tax Expenditures More Transparent and Accountable,” provides twelve specific recommendations for realizing this vision.  Among those recommendations are: improving the state’s existing tax expenditure report, sunsetting all tax incentives, requiring the extension of a sunsetting incentive to undergo a “performance review,” and developing a unified economic development budget.

Until this week, New Jersey was one of just nine states refusing to publish a tax expenditure report – i.e. a listing and measurement of the special tax breaks offered in the state.  Such reports greatly enhance the transparency of state budgets by allowing policymakers and the public to see how the tax system is being used to accomplish various policy objectives. 

Now, with Governor Jon Corzine’s signing of A. 2139 this past Tuesday, New Jersey will finally begin to make use of this extremely valuable tool.  Beginning with Governor-elect Chris Christie’s FY2011 budget, to be released in March, the New Jersey Governor’s budget proposal now must include a tax expenditure report.  The report must be updated each year, and is required to include quite a few very useful pieces of information.

The report must, among other things:

(1) List each state tax expenditure and its objective;
(2) Estimate the revenue lost as a result of the expenditure (for the previous, current, and upcoming fiscal years);
(3) Analyze the groups of persons, corporations, and other entities benefiting from the expenditure;
(4) Evaluate the effect of the expenditure on tax fairness;
(5) Discuss the associated administrative costs;
(6) Determine whether each tax expenditure has been effective in achieving its purpose.

The last criterion listed above is of particular importance.  Evaluations of tax expenditure effectiveness are extremely valuable since these programs so often escape scrutiny in the ordinary budgeting and policy processes.  Such evaluation can be quite daunting, however, and the Governor’s upcoming tax expenditure report should be carefully scrutinized in order to ensure that these evaluations are sufficiently rigorous.  One example of the types of criteria that could be used in a rigorous tax expenditure evaluation can be found in the study mandated by the “tax extenders” package that recently passed the U.S. House of Representatives.  For more on the importance of tax expenditure evaluations, and the components of a useful evaluation, see CTJ’s November 2009 report, Judging Tax Expenditures.

Ultimately, New Jersey’s addition to the list of states releasing tax expenditure reports means that only eight states now fail to produce such a report.  Those states are: Alabama, Alaska, Georgia, Indiana, Nevada, New Mexico, South Dakota, and Wyoming.  Each of these states should follow New Jersey’s lead.

If nothing else, 2009 certainly saw its share of movies featuring the undead – New Moon, Zombieland, and Daywalkers all spring to mind.  Now, that trend seems to be infecting state legislative debates, as tax policies or tax policy proposals thought to be dead seem to be springing back to life to terrorize unsuspecting citizenries.  

In Georgia last May, Governor Sonny Perdue rightly vetoed a measure that would have cut in half the taxes businesses and individuals pay on long-term capital gains, costing the state as much as $400 million per year, largely to the benefit of the most affluent of Georgians.  This past week, though, Lieutenant Governor Casey Cagle announced his intention to resurrect the measure in an attempt to spur economic growth.  

The undead are also threatening Vermont.  As part of its FY 2010 budget agreement, the Vermont Legislature enacted a variety of tax changes, including a reduction in the state’s capital gains exclusion from 40 percent of such income to an exclusion capped at $5,000.  While the Legislature was forced to enact such changes over the veto of Governor Jim Douglas, it’s worth noting that, as recently as 2008, the Governor had backed repealing the deduction outright and using the influx of revenue to reduce marginal tax rates, which the legislature did, to some degree, via the FY10 budget agreement.  Yet, in his State of the State address earlier this month, Governor Douglas proposed restoring that 40 percent exclusion to life.

Given the nation’s economic woes, it’s only natural for elected officials to seek ways to boost employment and to foster economic development.  Still, capital gains tax cuts are not the elixir of life for state economies.  As ITEP observed in its examination of state capital gains preferences last year, “extensive economic research demonstrates that there is little connection between lower taxes on capital gains and higher levels of economic growth, in either the short-run or the long-run.”

For more on tax and budget debates in Georgia and Vermont, visit the Georgia Budget and Policy Institute and the Public Assets Institute.

Our crystal ball tells us that Georgia legislators will spend a lot of time in the new year debating property taxes. The Atlanta Journal Constitution has responsibly studied this issue with several in-depth articles that dig through property tax data and look to nationally respected experts for their opinions.

This week, Senate Majority Leader Chip Rogers recently revealed portions of the reform package that is expected from the Senate committee he chairs. The proposed reforms include: overhauling the appeals process and prohibiting county assessors from setting a property's value higher than the sales price. The latter proposal would likely deal a tremendous financial hit to local governments, given the housing downturn.

In slightly brighter news, there doesn't seem to be much political will to actually eliminate the property tax altogether despite proposals put forward in recent years by prominent politicians, including former Speaker of the House Glenn Richardson. Stay tuned...

This week, the Institute on Taxation and Economic Policy (ITEP), in partnership with state groups in forty-one states, released the 3rd edition of “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States.”  The report found that, by an overwhelming margin, most states tax their middle- and low-income families far more heavily than the wealthy.  The response has been overwhelming.

In Michigan, The Detroit Free Press hit the nail on the head: “There’s nothing even remotely fair about the state’s heaviest tax burden falling on its least wealthy earners.  It’s also horrible public policy, given the hard hit that middle and lower incomes are taking in the state’s brutal economic shift.  And it helps explain why the state is having trouble keeping up with funding needs for its most vital services.  The study provides important context for the debate about how to fix Michigan’s finances and shows how far the state really has to go before any cries of ‘unfairness’ to wealthy earners can be taken seriously.”

In addition, the Governor’s office in Michigan responded by reiterating Gov. Granholm’s support for a graduated income tax.  Currently, Michigan is among a minority of states levying a flat rate income tax.

Media in Virginia also explained the study’s importance.  The Augusta Free Press noted: “If you believe the partisan rhetoric, it’s the wealthy who bear the tax burden, and who are deserving of tax breaks to get the economy moving.  A new report by the Institute on Taxation and Economic Policy and the Virginia Organizing Project puts the rhetoric in a new light.”

In reference to Tennessee’s rank among the “Terrible Ten” most regressive state tax systems in the nation, The Commercial Appeal ran the headline: “A Terrible Decision.”  The “terrible decision” to which the Appeal is referring is the choice by Tennessee policymakers to forgo enacting a broad-based income tax by instead “[paying] the state’s bills by imposing the country’s largest combination of state and local sales taxes and maintaining the sales tax on food.”

In Texas, The Dallas Morning News ran with the story as well, explaining that “Texas’ low-income residents bear heavier tax burdens than their counterparts in all but four other states.”  The Morning News article goes on to explain the study’s finding that “the media and elected officials often refer to states such as Texas as “low-tax” states without considering who benefits the most within those states.”  Quoting the ITEP study, the Morning News then points out that “No-income-tax states like Washington, Texas and Florida do, in fact, have average to low taxes overall.  Can they also be considered low-tax states for poor families?  Far from it.”

Talk of the study has quickly spread everywhere from Florida to Nevada, and from Maryland to Montana.  Over the coming months, policymakers will need to keep the findings of Who Pays? in mind if they are to fill their states’ budget gaps with responsible and fair revenue solutions.

Earlier this week, the Georgia Supreme Court ruled in favor of the City of Columbus and against hotels.com, an online travel company (“OTCs”) that charges customers one rate for booking a hotel room but pays local governments a lodging tax based on cheaper, wholesale room rates.  The Court’s finding mirrors its decision in a case decided in June against Expedia.com.  In both instances, the Court held that the tax for which the OTCs were liable should be based on the retail room rate paid by their customers.

OTCs contract with local hotels to provide rooms for a discounted or wholesale rate.  When a customer books a room online, the OTC charges the customer a “marked-up” rate along with taxes and service fees.  Under Georgia law, municipalities may impose hotel occupancy and excise taxes on the furnishing of any room, lodging, or accommodation.  The Court noted that state law allows cities to impose a tax on the lodging charges actually collected. 

The high court’s decisions are binding across Georgia, so the two Columbus cases could affect other suits filed by governments seeking to collect the proper amount of lodging taxes from OTCs.  The cases have been remanded to the lower courts to determine how much money the online services owe in back taxes and penalties. 

Importantly, numerous other cities – including Houston, San Antonio, and Miami have sued or initiated administrative proceedings against OTCs, asserting that they owe back taxes on their price mark-ups.  While many cases have yet to be fully adjudicated, one other recent case yielded much the same verdict as Columbus’ suit against hotels.com.  In February, multiple OTCs, including Orbitz and Travelocity, were ordered to pay the city of Anaheim, California, $21 million in back taxes, fees and penalties related to the payment of hotel occupancy taxes.

Rulings such as these have motivated OTCs to seek enactment of federal legislation that would ban state and local taxation of hotel room rentals when booked by such a company.  However, as these rulings demonstrate, there is no justification for limiting the base for such a tax to the wholesale price of a hotel room, let alone eliminating taxation altogether.  Hotel taxes are consumption taxes, which should be measured by the value of the consumption to the customer.  Therefore, the tax should be imposed on the retail amount.  For more on this subject and on the OTC’s push for federal legislation, see this helpful report from the Center on Budget and Policy Priorities.

When someone demands that Congress abolish the federal income tax, we typically consider that a fairly extreme position. But then again, we don't run in the same circles as Georgia gubernatorial candidate John Oxendine, who feels that his peers in the anti-tax community are too wishy-washy if they don't also call for a repeal of state income taxes. 

He recently said, "I think it's very hypocritical for state officials to be running around bad mouthing the federal government for having an income tax when the state of Georgia does the same [thing]. As governor, I want to get rid of the state income tax." Oxendine thinks that states like Georgia must lead the way and eliminate their state income taxes.

In Georgia, inadequate tax revenue is a threat to justice -- quite literally, in the sense that the state is not able to carry out the basic administration of justice through its court system. As the Wall Street Journal reports, "the wheels of justice in Georgia are grinding more slowly each day" because "Cuts in spending for the state court system have led to fewer court dates available for hearings and trials, creating a growing backlog of cases."

Now, just three months into the state's fiscal year, already under-funded state agencies are being asked to cut another 5 percent from their 2010 budget. Now is likely not the time to eliminate the state's largest source of revenue.

Former Ohio Congressman John Kasich is running for Ohio Governor and is also promising to repeal the state's income tax. However, the severity of Ohio's budget situation has apparently provoked some caution. The Columbus Dispatch recently reported "Kasich also said that the state's dire budget situation would make it difficult to begin phasing out the state income tax in his first term." He apparently assumes that the state's current budget crisis is the last the state will ever face, freeing it to abolish a major source of revenue in the future.

Of course, abolishing a state's income tax is a terrible idea even in times of surplus because income taxes are fairer than any other type of revenue source. A recent ITEP report makes this point in analyzing a recent proposal in Missouri to eliminate corporate and individual income taxes and replace the revenue with an enormously expanded sales tax. The Missouri proposal (which was not enacted) would have effectively slashed state taxes for wealthy residents while sending the bill to working families who spend most of their income purchasing necessities.  

States policymakers across the country are looking to the future and anticipating another year of tough budget decisions about whether to cut services or increase taxes. Two recent pieces from research groups in Georgia and North Carolina make excellent points about the importance of considering tax increases and their impact on economic development.
 
Last week, the Macon Telegraph published an editorial by Alan Essig, Executive Director of the Georgia Budget and Policy Institute. Essig notes that there "is more to economic development policy than having the lowest tax rate. Economic development depends on, at the least, adequate public structures; without them, it is difficult to recruit and grow businesses in Georgia, no matter how low taxes are." Racing to the bottom in terms of tax rates is hardly the best economic development decision a state can make.
 
North Carolina legislators did take a balanced approach to filling their state's budget shortfall by passing both tax increases and budget cuts. Yet, this hasn't stopped anti-taxers from crying "job killing taxes." The North Carolina Budget and Policy Center recently released a report debunking the myth that state tax increases cause job losses. Read the Center's report, Wishful Thinking: Claims That State Tax Increases Cause Job Loss are Unfounded.

Governor Concedes Supply-Side Tax Cuts Are Not Workable, But Still Insists He Likes Them

Georgia's Governor Sonny Perdue ended a month of speculation this week when he decided to veto a capital gains tax cut -- but seemed to equivocate on the outrageous claim that capital gains tax cuts can actually result in increased revenue.

As reported here, the Georgia legislature in early April passed a budget for fiscal year 2010 that included a major tax cut for the wealthy (an exclusion for long-term capital gains income). The proposal was roundly criticized by opinion leaders in the state, including the Atlanta Journal Constitution and the Macon Telegraph, because the vast majority of the benefits would go to the richest state residents and because of its potential revenue impact during a state budget crisis.

Uncertainty surrounded the outcome because it was unclear what Governor Perdue, a proponent of "supply-side" tax cuts, would decide. Supply-side economics is a school of thought associated with conservative politicians (but not many mainstream economists) that tax cuts for investment or for those who invest can yield huge increases in economic growth. Most incredibly of all, this resulting economic growth is often argued to result in so much new tax revenue that the tax cut can be cost-free or can even lead to increased revenues. Proponents of this idea believe that cuts in the capital gains tax are especially likely to lead to increased revenues.

On Monday, the Governor issued a veto statement saying that, "While some argue these tax reductions will ultimately generate more revenue, the constitutional restraint of a balanced budget prevents policymakers the luxury of time to allow that growth to overcome the short-term loss of revenue." In other words, the Governor seemed to imply that cutting taxes on capital gains income could actually result in increased revenue, but the increased revenue simply would not come soon enough to meet the requirement that the state budget be balanced each year. To make clear that he was not opposed to such tax cuts in principle he added, "Should the General Assembly choose to enact a budget next session that incorporates the estimated revenue reductions caused by large tax cuts, I would entertain such cuts at that time."

The Governor should be thanked for vetoing a regressive and irresponsible tax cut in the middle of a budget crisis, but he should be called to task for entertaining the absurd idea that tax cuts (of any sort) can actually lead to increased revenues.

Middle-income Georgians are still waiting for their Governor to decide whether to increase their property taxes and use the revenue to slash capital gains taxes for the rich. Legislation making both of these changes (HB 481 and HB 261) continues to sit on Governor Sonny Perdue's's desk even as it's roundly criticized by opinion leaders, including the Atlanta Journal Constitution and the Macon Telegraph.

The editorial boards of both papers cite ITEP's recent report on the legislation. The analysis describes the impact across income groups of eliminating a property tax relief program in combination with cutting taxes on capital gains income. The Atlanta Journal Constitution points out, "So who will see a boon from a capital gains tax break? A very wealthy few. People in the top 10 percent of the income spectrum own about 70 percent of taxable stocks. In its analysis of the capital gains tax break, the Washington-based Institute on Taxation and Economic Policy concluded that 77 percent of the tax cut would go to the very richest 1 percent of Georgians."

Sadly, bad news for the Georgia economy may be what it takes to convince the Governor that tax cuts for the rich, even if they are partially offset by tax increases on somebody else, are simply unaffordable. As Charles Richardson at the Macon Telegraph writes, "There is more bad news on the economic front. On May 7, the governor should get the revenue report for April. It is not expected to be good. March's numbers were down 14 percent. However, that dark cloud may hold a silver lining. The dismal income report may spur Gov. Perdue to veto HB 481 and HB 261. That would be fiscally prudent, and move the state closer to fiscal responsibility and away from ideological, get-out-the-vote rhetoric that is leading us to disaster."

A new report from the Georgia Budget and Policy Institute highlights the shocking decision on the part of Georgia legislators to actually cut taxes in the face of an immense budget deficit. According to the report's analysis of official state fiscal notes, if the Governor signs all tax bills passed by the legislature, state revenues will fall by $116 million in fiscal 2010, and by over $1.2 billion in fiscal 2012.

The bill with the biggest cost includes a pricey and regressive exclusion for 50% of all long-term capital gains income, analyzed by ITEP earlier this month. In addition, a $1,800 tax credit for home buyers, as well as a dozen other tax cuts would dig the state deeper into debt if approved by the Governor.

The Center on Budget and Policy Priorities recently released a very useful report summarizing tax expenditure reporting practices in the states, as well as methods for improving a typical state's tax expenditure report. For those unfamiliar with the term, a "tax expenditure" is essentially a special tax break designed to encourage a particular activity or reward a particular group of taxpayers. Although tax expenditures can in some cases be an effective means of accomplishing worthwhile goals, they are also frequently enacted only to satisfy a particular political constituency, or to allow policymakers to "take action" on an issue while simultaneously being able to reap the political benefits associated with cutting taxes.

Tax expenditure reports are the primary means by which states (and the federal government) keep track of these provisions. Unfortunately, most if not all of these reports are plagued by a variety of inadequacies, such as failing to consider entire groups of tax expenditures, or not providing frequent and accurate revenue estimates for these often costly provisions. Shockingly, the CBPP found that nine states publish no tax expenditure report at all. Those nine states Alabama, Alaska, Georgia, Indiana, Nevada, New Jersey, New Mexico, South Dakota, and Wyoming, undoubtedly have the most work to do on this issue. All states, however, have substantial room for improvement in their tax expenditure reporting practices.

For a brief overview of tax expenditure reports and the tax expenditure concept more generally, check out this ITEP Policy Brief.

Last Friday, the Georgia General Assembly passed a budget for fiscal year 2010 that includes a major tax cut for the wealthy (an exclusion for long-term capital gains income) and a substantial tax increase for the middle-class (eliminating a state-funded property tax relief program). A new report from ITEP concludes that if this proposal was fully implemented in 2008, the poorest 95 percent of Georgia taxpayers would pay, on average, higher state taxes than they do now.

The proposed capital gains tax break would allow investors to exclude 50 percent of their long term capital gains income from the state income tax when fully implemented in 2012. If the capital gains tax cut had been fully implemented in tax year 2008, Georgia residents would have seen a total tax cut of about $340 million, and the very richest 1 percent would receive an incredible 77 percent of that. (For more on flaws of capital gains tax breaks at the state level, see ITEP's report A Capital Idea.)

The property tax increase used to offset the costs would eliminate the Homeowner Tax Relief Grant (HTRG). Through the grant, the state of Georgia currently pays most property taxes on the first $8,000 of a Georgia homestead's assessed value. Since Georgia homes are assessed for tax purposes at 40 percent of their market value, this is equivalent to exempting $20,000 of a home's market value from property taxes.

While there are certainly flaws with any homestead exemption, there are plenty of alternatives for making property tax relief fairer. For example, a property tax circuit breaker can ensure that, for homeowners and renters earning below certain income levels, property taxes do not exceed a certain share of a family's income. (For more on the benefits of property tax circuit breakers, see ITEP's policy brief.)

The repeal of the Homeowner Tax Relief Grant should, in theory, have given lawmakers an important opportunity to rethink its approach to property tax relief. But the budget plan squanders most of the tax savings from HTRG repeal on a poorly-conceived long-term capital gains tax cut for a small number of the wealthiest Georgians. Governor Sonny Perdue should know that approving these changes would amount to a blatant shifting of state taxes from the rich to the middle-class.