Georgia Governor Gives up Tax ‘Windfall’

Published March 1, 2006

One of the first actions of Georgia legislators when they convened for the 2006 session was to approve Republican Gov. Sonny Perdue’s executive order for a temporary cut of the state sales tax on natural gas and liquid propane gas for residential use.

The Georgia Public Service Commission, which monitors natural gas prices, had predicted a 23 percent increase in residential energy bills, and Perdue insisted, “State government should not reap a financial windfall because of unfortunate market conditions causing the cost of natural gas and liquid propane to rise.”

Natural gas prices in particular have soared because supplies are not keeping up with demand, an ongoing challenge exacerbated by hurricane-related damage from 2005.

Perdue’s executive order, issued in December, noted, “Under these circumstances, where a precipitous inflation in the price of essential commodities results in a windfall in tax revenues to the state, it is incumbent that such a surplus be returned to the taxpayers of Georgia.”

Sales Tax Cut in Half

The move drops the 4 percent sales tax to 2 percent for natural gas from January to April and for liquid propane from January to March, accounting for different billing cycles. It is expected to save Georgia households $15 million, according to the fiscal note attached to the legislation. The household savings would be $5 to $10 per month, the bill’s sponsor, Rep. Jay Roberts (R-Ocilla), told legislators.

The governor’s tax cut follows a one-month moratorium on the state sales tax on gasoline that was implemented after hurricanes Katrina and Rita hurt supplies. That moratorium was ratified by the General Assembly in a special session and saved motorists an estimated $77 million.

Want ‘Comprehensive Policy’

The ratification of the energy tax cut, House Bill 970, passed the House 169-2 before heading to the Senate for certain passage. Not everyone was satisfied with the governor’s tax cut, however. Democrats criticized it as a band-aid and called for a “comprehensive energy policy” that includes renewable energy and targets energy efficiency instead of consumption.

“Are we going to continue to give tax cuts to a problem that’s not going to go away?” asked Rep. Douglas Dean (D-Atlanta), one of the two Democrats who voted against the bill. The other, Rep. Bob Holmes (D-Atlanta), questioned the wisdom of a tax cut he said would benefit middle- and upper-income persons, instead of reassigning the funds to the state’s Low-Income Home Energy Assistance Program (LIHEAP).

“This is about giving that surplus back to everyone,” responded Roberts, who noted Perdue’s proposed budget would fully fund LIHEAP for the first time in Georgia, benefitting low-income households by an average of $217 a month.

Bigger Solutions Sought

Rep. Nan Orrock (D-Atlanta) said the move was “a great campaign bumper sticker–‘I cut taxes on your heating bill’–but this is no solution for Georgia families.”

Democrats weren’t alone in questioning the temporary tax cut. Kelly McCutchen, executive vice president of the Georgia Public Policy Foundation, which supports general tax and spending cuts, told Morris News Service, “I think elected officials have always looked for these kinds of … gimmicks.”

Georgia industries, meanwhile, are also seeking relief from soaring energy costs. HB 209 proposes cutting the 4 percent state sales tax on energy costs for manufacturers, who say they are at a competitive disadvantage as compared with other states. Thirty-nine states–including Alabama, Florida, South Carolina, and Tennessee–exempt manufacturers from their state sales tax on energy.

Benita Dodd ([email protected]) is vice president of the Georgia Public Policy Foundation.