State and Local Fiscal Policy
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State and Local Fiscal Policy

Thinking Outside the Box?

  • Studies in Fiscal Federalism and State–local Finance series

Edited by Sally Wallace

In this broad and illuminating work, experts on public finance discuss innovations in state and local tax policy that have been implemented or considered over the course of the last three decades. The authors provide original work that analyzes whether state and local governments have ‘gone outside the box’ to deal with the strains of current public finances or have gotten along by adhering to the status quo. This book provides researchers, students and policy makers with evaluations and analyses by well-known scholars in the area of state and local public finance of actual practices and analysis of potential policy changes for the future.
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Chapter 7: Can Georgia Move from Income Tax to Consumption Tax?

Sally Wallace

Extract

7. Can Georgia move from income tax to consumption tax? Sally Wallace INTRODUCTION Since 1985, there have been numerous calls for flat taxes in the US and abroad. These calls have led to substantial rethinking of income taxes for the first time in many years. Flat tax reforms often call for an income tax system that limits deductions, exemptions and credits, and imposes one statutory tax rate. In some countries, flat tax reforms have integrated the corporate and individual income taxes. Flat tax reforms have simplified the structure of the income tax in countries such as Jamaica, Estonia, Russia and Lithuania. While the flat rate income tax reforms of Jamaica, Estonia, Russia and other countries have their merits, they are aimed at simplifying the tax system through elimination of various exemptions and deductions, and by simplifying the tax rate structure. They do not fundamentally change the base of taxation. There is, however, another type of income tax reform (which, unluckily, is also referred to as flat tax reform) that stems from a long-standing debate over the merits of a general consumption tax versus a broad-based income tax. This kind of reform fundamentally changes the base of taxation from realized income (wages, realized capital gains, interest income and the like) to consumption. It may be accomplished using a reporting mechanism that is similar to an income tax, but one which exempts savings from taxation. In the United States, there have been numerous consumption tax proposals at the federal government level. Hall...

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