Is SPLOST a Regressive Tax?

The local government of Athens, Georgia has been reliant on local option sales taxes for decades, with voters always supporting them at the polls. Recently, both TSPLOST and ELOST (for transportation and education, respectively) were approved by huge margins. Voters are being summoned again in November, this time for approval to continue a 1% sales tax called SPLOST (to fund a list of special projects).

Some who disapprove of SPLOST may accuse it of being a regressive tax. They’ll probably try to use that as a reason why progressives should join anti-tax conservatives in voting no this year.

But what does regressive mean? Is SPLOST regressive? And if so, is that a reason to vote no?

What’s a Regressive Tax?

A tax is considered regressive if it falls harder on the poor than it does on the rich.

Sales taxes are the classic example of a regressive tax. For example, let’s imagine Joe makes $100 a week. Let’s say he spends it all around town (he can’t afford to save anything). SPLOST is a 1% tax, so Joe’s SPLOST bill would be a full 1% of his income, or $1 a week. Sally might make $1000 a week, but she only spends half of it locally and saves the rest of it. She would pay the same 1% on everything she buys. That would amount to $5 a week for Sally.

Joe pays $1 a week, or 1% of his income.
Sally pays $5 a week, or 0.5% of her income.

This tax is considered regressive, because the person with the higher income is paying less as a percentage. For other taxes, it’s often the reverse. Income taxes, for example, have higher tax brackets for the wealthy, making them pay a larger percentage of their income in taxes. That’s called a progressive tax.

Is SPLOST Regressive?

SPLOST is a sales tax, so yes, by definition it is considered a regressive tax. But that’s not the whole story. In fact, SPLOST may be the most progressive tax available to us here in Athens. Let me explain!

Shelves of books in a library
Project #25: Eastside Library

The problem we’re facing, like so many others, can be traced back to the Republicans in control of our state legislature. They’re not big fans of progressive taxation (shocker!), and they have blocked most means of implementing a more progressive tax system in Georgia. For example, cities in Georgia cannot levy an income tax. We’re not allowed. We even have restrictions on how property taxes can be set up, making it tough to craft them in a progressive way.

This means the only options available to us to raise money for our local government are regressive ones. That’s by design. Now we’re stuck asking the question — which is the best of our bad options?

Which is Less Regressive: Sales or Property Tax?

We know that sales taxes are regressive, but in Athens we’re blessed with a number of students and many other visitors who come every year. These fine folks spend their hard-earned money into our economy. They buy Bulldawg apparel, eat at our restaurants, drink at our bars and generally support our strong service and retail sectors across the board. They account for a large chunk of our local government’s sales tax revenue, making this “regressive” tax quite a bit easier to bear for us locals.

Solar panels on a sunny day
Project #11: Renewable Energy

According to the FY2020 local government budget, a 1% sales tax rakes in about $24 million a year in Athens right now. If this money was raised through property taxes instead, by my calculations, we’d have to raise property taxes from the current 13.95 mils all the way to 19.31 mils. That’s an increase of 5.36 mils.

Unfortunately, I don’t believe this is politically possible, even with our progressive commission! People freak out over a single mil increase (or even less). An increase of more than 5 mils would not go over well, to put it mildly!

Possible or not, are Property Taxes More Progressive?

The answer depends on a few factors:

Are property taxes passed along to renters?

In my view, the biggest factor in this analysis is if low-income renters shoulder the burden of property taxes in Athens. Do they, or is it only the people who actually own the property who wind up paying the tax on it? (A related factor would be: how many low-income Athenians own property?)

A wifi symbol over a map of Athens, Georgia
Project #22: Broadband Connectivity Enhancement

In the perfect competitive market of classical economics, landlords would be unable to pass along tax increases. Why? Prices in this ideal world are set only by the intersection of supply and demand. Taxes don’t factor into this equation in the short-term, because they don’t affect either variable (e.g. people will still need a place to live regardless, so demand is not much affected, and the apartment buildings aren’t going anywhere, so neither is supply, at least in the short term).

However, there’s a real question as to the competitiveness of our current housing market. Are landlords competing with each other to attract renters? Or are they able to charge whatever they want, and get it (i.e. does market power rest with landlords or with renters)? I’m unaware of any economic study of this question in the Athens area, but my intuition is that landlords have at least some market power over renters here.

This means that they’d be able to pass along at least some of the costs from a property tax increase, pushing the burden back on low-income renters. That doesn’t sound progressive to me!

How Much do People in Athens Buy Things in Oconee county?

Another factor rests in the buying habits of Athenians. Low-income people tend to spend more of their money locally, which would unfortunately make them more subject to SPLOST taxes. But with some of Athens’ retail having moved to Oconee county, and with some online retailers not required to pay local sales tax, the question remains: how much do residents shop in Athens these days? How do their shopping habits change as their income level changes?

If Athenians of modest means are harmed by sales taxes more than the average Bulldawg fan, might they try to get around SPLOST by going to Epps Bridge Parkway? If they have access to transportation, the answer could be yes.  However, higher-income Athenians still would seem much more likely to spend money out of town. Yet, the data is not entirely available for us to get an exact number, and so we’re left guessing on an important factor in this discussion.

How much Property Tax do non-Athenians Pay?

We already know that visitors and students pay a large amount of our sales tax. But do they also pay some of our property tax? How much? If the number is high, then that would point to property tax being the better of the two options for Athenians. Again, I must confess I don’t have the numbers for you.

But which is more progressive? You haven’t answered the question yet!

Since there’s so much we don’t know about the facts and about the economics of this situation, I can only offer you my best guess and sincere thoughts on this question.

List of projects for SPLOST 2020
See the rest of the SPLOST 2020 project list here!

It seems likely that raising property taxes to 19.31 mils (!!!) would cause the rich in Athens to pay much more than it would the poor, even as a percentage of income. Since this is the definition of “progressive,” I’m forced to say that, by definition, property taxes seem to be the more progressive of the two options. But this isn’t what most people mean when they say they want a “progressive” tax. I feel that what most people mean is that they want a tax that hurts poor residents less than the alternative while still raising the same amount of money in total.

If we use this definition of progressive instead, then I feel that sales taxes may indeed be the more progressive option here in Athens. This is because that while high property taxes can force rich Athenians to pay up, they let the many rich visitors we have off the hook completely. Since we spend taxpayer resources on police during (and on clean-up crews after) football games, and to repair our damaged roadways after the visiting SUVs are all gone, it’s only fair to ask these visitors to chip in to government revenues.

Sales taxes are the best way to do that. It seems likely to me that sales taxes hurt both poor and rich Athenians less than would an equivalent level of property taxes.

Conclusion

If you reject all taxation, or if you just don’t like the project list, then by all means vote no on SPLOST. But if you’re planning on voting no because of concerns about regressive taxation, I’d recommend thinking twice on it. I don’t think you’re wrong that SPLOST is in fact regressive; it is. But what’s our other option for raising money? If we refuse to make use of SPLOST for this reason, it seems that we should also refuse to make use of property taxes. This kind of thinking would leave our government starved for resources and unable to confront the many challenges our community faces. Personally, I don’t think that would be very progressive.

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