Transportation sales tax could be historic for wrong reason, Dalton mayor says

Dalton Mayor David Pennington is not on board with the idea of a penny-per-dollar sales tax to fund transportation projects. He fears a higher sales tax will encourage people to shop in nearby Tennessee and spend less money in his North Georgia city.

And he really doesn’t like plans to hold a referendum in November 2012, as opposed to the initial idea of a vote on the transportation sales tax in July.

The people trying to switch the date of the vote, Pennington said, are "obviously trying to get the Obama Democrats to help pass what could be the largest tax increase in Georgia history: $1.6 billion a year."

Pennington’s problem with November 2012 is he believes it’s a sly attempt by referendum supporters to get more people likely to vote in favor of the sales tax to cast their ballots. The presidential election will be held in November, and more Democrats are likely to vote then as opposed to July, when election primaries are held. President Barack Obama is not expected to have a primary challenger.

Interesting, but we were more curious about the latter part of his quote. Could this sales tax actually be the largest tax increase in state history?

David Sjoquist, who frequently does research for state lawmakers as director of the Fiscal Research Center at Georgia State University, had several questions about Pennington’s claim, including these: What did the mayor mean by largest increase? In one year? Over the span of several years?

"It’s a tricky comparison," Sjoquist said.

Pennington said he was referring to the annual total it’s estimated that the tax could generate. The mayor remembered a presentation last year from state transportation officials that estimated the annual total at $1.6 billion. Georgia Transportation Department officials estimated in June that the sales tax would bring in an at least $1.4 billion a year.

"I don’t even remember in my lifetime a tax that would be as much," Pennington told us.

He added in a follow-up conversation: "I want everyone to know how big of a tax this is going to be."

The last sizable tax increase of any kind that experts could remember occurred in 1989 when Georgia lawmakers increased the state sales tax from 3 percent to 4 percent. That tax was expected to raise at least $507 million a year. Sales tax revenue increased by about $613 million between 1989 and 1990, state economist Ken Heaghney said, although he pointed out that some of that revenue came from an increase in sales activity in Georgia. Sales tax revenue declined slightly the next two years but has grown steadily in the following years.

Jeff Humphreys, the director of the University of Georgia’s Selig Center for Economic Growth, noted that the sales tax increase was approved with an exemption on food.

"That [sales tax] increase was not as large as it seemed," Humphreys said.

There have been a handful of other major tax increases in past decades. But revenue records are hard to find, so it is difficult to say whether others had a bigger financial impact than the proposed transportation sales tax. The last time Georgia’s motor fuel tax was raised was in 1971, by a penny. The corporate tax rate was last changed in 1969, with an increase from 5 percent to 6 percent. Georgia’s income tax was created during the Great Depression.

Georgia created its sales tax in 1951 and set the rate at 3 percent. Total state revenue collections rose from $145.3 million in 1951 to $220.5 million in 1952, a $75 million difference. Adjusted for inflation, that is about $600 million in today’s dollars. We believe it’s safe to say that much of that difference came from the creation of the sales tax.

So we found two cases of sizable increases in revenue from tax hikes. Still, it doesn’t compete with the estimated $1 billion-plus from the transportation sales tax.

Each economist and expert we spoke with noted a potential problem with Pennington’s claim: The tax may not collect $1 billion or more.

The way the referendum works, the state is divided into 12 regions and it’s up to voters in each region to decide whether to approve the sales tax. There’s great debate about the referendum’s chances in the 10-county metro Atlanta region. The tax is projected to raise about $8 billion for transportation projects over the span of 10 years, which is at least one-half of the total statewide.

Pennington conceded the tax "would be a whole lot smaller" than $1.6 billion a year if it doesn’t pass in metro Atlanta.

The latest revenue projection from the tax for Pennington’s northwest Georgia region is $140 million a year.

It is possible, if all 12 regions pass the tax, that it could collect more than $1 billion a year, which would be the largest tax increase that we could find. The key will be whether voters in the Atlanta region approve it. Since Pennington said it "could" be the largest tax increase, we believe he gets to drive through the safe lane on his claim. Our rating is True.

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