Georgia currently imposes a state income tax at a flat rate of 5.19 percent on taxable income. However, there is a growing movement to eliminate this tax to make living in the state more appealing, particularly for younger demographics. During a recent testimony before Georgia state senators, esteemed economist Dr. Art Laffer expressed his critical view of state income taxes, asserting they are not beneficial.

The primary challenge lies in compensating for the lost revenue while maintaining the state budget. Dr. Laffer offered insights on alternative solutions to address this issue.

Currently, nine states operate without a state income tax, including Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. These states typically offset the absence of income tax through other means, such as increasing sales taxes. The fundamental distinction is that sales taxes target consumption, whereas income taxes impact production.

Every state that implemented an individual income tax since 1960 had both its gross domestic product and total tax revenue decline, Dr. Arthur B. Laffer of The Laffer Center told Georgia senators Monday.

Of the 11 states that introduced an income tax in that time frame, not one succeeded in boosting their total revenue. Those states were West Virginia, Indiana, Michigan, Nebraska, Illinois, Maine, Pennsylvania, Rhode Island, Ohio, New Jersey and Connecticut.

“What I’m saying here is when a state introduces an income tax, it collapses before your very eyes,” said Laffer. Adding, “If they were to get rid of their income tax, they could return to the state they were prior to the income tax which would be an enormous improvement.”

The concern, of course, is replacing income tax revenues to avoid a hit to the state’s budget. Dr. Laffer has an answer to that, too.

It’s possible, Laffer said, to do away with the state income tax and potentially even lower the sales tax if the sales tax credits were scrapped.

That point spoke directly to another concern brought up by Orrock who pointed out some states that eliminated income taxes have higher sales taxes.

“Your sales tax exemptions cost you in revenues more than the income tax collects,” said Laffer.

Nine states, at present, have no state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. These states typically make up the difference in other ways, like a higher sales tax. But there’s a key difference: Sales taxes tax consumption. Income taxes tax production.