The cries were heard in the capitol hallways:  Broaden the tax base!  Flatten the tax rates!  Cut income taxes for everybody!

The tax reform campaign appeared to be an unstoppable juggernaut that would roll through the General Assembly and drop a bright, shiny bill on the desk of Gov. Nathan Deal for his signature.

The only problem was, reality intervened.

A major part of the tax revision proposal involved the elimination of most of the tax breaks and exemptions that had been granted over the years to various businesses and special interest groups.  Corporate lobbyists quickly made it clear that they weren’t going to sit still and allow that to happen.

“We got out-lobbied,” said A. D. Frazier, the retired banker who chaired a study council that drafted the tax revision plan. “It was as simple as that.”

It also turned out that facts are stubborn things.  The academic consultants and economists who analyzed the tax proposal pointed out that lowering income tax rates for businesses, which was the primary goal of the leadership, would make it necessary to raise taxes on everyone else to comply with the constitutional requirement that the Legislature adopt a balanced budget.

Legislative leaders kept demanding that the analysts run the numbers again until they came up with a more favorable outcome, but no matter how many times you add it up, you cannot make two plus two equal five.  In the end, the tax revision bill was yanked from the table by House leaders before it ever went to the rank-and-file members for a vote.

House Speaker David Ralston has maintained ever since that fiasco that lawmakers would make another attempt to revamp the tax system.  The first indications of that new campaign surfaced last week when a legislative committee held a brief meeting to lay out their plan.

Sen. Bill Heath (R-Bremen) proposed eliminating the sales tax on energy used in manufacturing and agriculture, increasing the state sales tax to 5 percent, restoring the state sales tax on groceries that was removed in the 1990s, and increasing the tobacco tax from 37 cents per pack of cigarettes to $1.37 a pack.

The revenues raised from the sales and excise tax increases would make it possible to lower the income tax rate from 6 percent to 3.7 percent, Heath estimated.

Senate President Pro Tem Tommie Williams (R-Lyons) was especially supportive of the idea of restoring the sales tax on groceries, calling the elimination of that tax “one of the biggest mistakes” of former governor Zell Miller’s administration.

“We really ought to put the sales tax back on food, which everybody pays, and put it (an income tax reduction) back for people who actually paying the taxes,” Williams contended.

With the leadership of one legislative chamber ready to move forward, you’d think that tax revision was a certainty.

That turned out not to be the case, however.  One of Deal’s spokesmen said the governor would not support tax increases on groceries or cigarettes.

The House Republican leadership also seemed a little reluctant to start mixing it up on the tax issue along the lines proposed by their Senate colleagues.

“I’m very leery of this economy we’re in now, particularly the world situation,” said House Majority Leader Larry O’Neal (R-Bonaire), an attorney with a lot of expertise in business tax law. “If you couple a big change in tax policy with what could happen in Europe . . . on a short-term basis, that might put too much pressure on small businesses.”

There is also this to consider:  because of the recent reapportionment process, many legislators will be running for reelection in redrawn districts that include new voters.  I don’t think they relish the idea of explaining to these new constituents why they voted to put a 4 percent state sales tax on the food they buy when they go to the grocery store.

For all those reasons, it would seem that revising the state’s tax laws will remain a project that will largely be set aside for others to take up some point in the future. It might be too risky to take on in an election year.

© 2011 by The Georgia Report

“The worst thing that could happen to Democrats is for Republicans to elect someone honest as speaker,” he said.

Is that what happened on Thursday when GOP lawmakers picked Rep. David Ralston (R-Blue Ridge) as their nominee for speaker? It’s too early to know. It appears that Republicans at least cut their losses when they opted for Ralston rather than Rep. Larry O’Neal (R-Bonaire).

O’Neal is an amiable fellow on a personal level and one of the smartest attorneys serving in the House of Representatives. But he still is carrying a lot of personal baggage from events that happened nearly five years ago, when he engineered the passage of a bill that gave his friend and real estate client Sonny Perdue a humongous tax break worth an estimated $100,000.

That tax break became an issue in the race for speaker, with some lawmakers arguing that it was ridiculous to claim you were making a clean break from the scandals of Richardson if you then turned around and replaced him with someone who finagled a lucrative tax deal for a powerful client.

O’Neal tried to neutralize that argument, sending an email to lawmakers in which he revealed:

The IRS sent a team of federal auditors to conduct a full forensic audit of every aspect of this land issue transaction. It was a multi-week, full-blown, on-site examination.

The result was that the IRS made zero adjustment to the taxes involved [for Perdue] and exonerated me once and for all for any wrongdoing in this matter.

O’Neal was skirting the real issue here. The IRS may well have ruled that the tax break given to Perdue was technically legal, but that does not change the fact that the manner in which the bill passed was highly unethical and dishonest.

Ralston had some major tax problems of his own a few years ago, problems that he attributed to an embezzling employee in his law firm. Ralston ordered a forensic audit of his books and then paid the government the delinquent taxes he owed. That may well have given him just enough of a margin among House Republicans to defeat O’Neal.

Regardless of how Ralston’s tenure as speaker works out, this has not been a happy holiday season for Republicans who hold the reins of power at the capitol. One after another, embarrassing scandals have thrown a harsh light on the ethical shortcomings of the state’s political leaders.

Richardson’s divorced wife dropped the first bomb when she went on TV and confirmed that, yes, those rumors you heard for the past three years were true. The speaker had a “full-out affair” with an Atlanta Gas Light lobbyist while he was sponsoring legislation that would benefit the gas company.

It didn’t take long for pressure from within the House Republican ranks to force Richardson to step down as speaker. The second in command, Speaker Pro Tem Mark Burkhalter, at first indicated he would step up and replace Richardson on a long-term basis.

On the day after Richardson quit, Burkhalter granted an interview to Lori Geary of WSB-TV and was aggressively questioned about his own conduct. Burkhalter stumbled through his answer to the most pointed question.

Geary: “No skeletons in your closet that we should be worried about: lobbyist affairs, or children out of wedlock, anything like that?”

Burkhalter: “Everybody’s going to say something out there. You know, I — I’m very comfortable in my own skin and, and, uh, I sleep just fine at night and, uh, no, you won’t see any, any innuendo like you’re referencing there.”

Three days after that interview was aired, Burkhalter abruptly told his colleagues he had changed his mind and wasn’t going to run for speaker after all.

The disclosures kept coming. A Carrollton newspaper and an Atlanta TV station reported that Rep. Mark Butler (R-Carrollton) had an affair that lasted more than two years with a woman who worked as a lobbyist for the University of West Georgia.

When Butler learned that his girlfriend’s job had been eliminated, he got on the phone with a university official and warned him that he “had ticked off a whole political party” by dismissing the lobbyist. (In fairness to Butler, he was unmarried during his relationship with the university lobbyist.)

WSB-TV then aired a report about Insurance Commissioner John Oxendine, the Republican frontrunner for governor, attending the 2007 and 2008 Oscar award ceremonies in Hollywood while an Atlanta doctor paid the expenses.

Oxendine’s expenses included a room at the Beverly Wilshire Hotel, limousine service, and meals at restaurants like Spago’s. The Atlanta doctor who picked up the tab for the trips, coincidentally, had also asked Oxendine’s insurance department to help him in a dispute with a health insurance company.

Oxendine’s campaign spokesman did not dispute the facts of the TV report, but said the expenditures did not violate any campaign laws.

“The only relevant part of the WSB story was the line where the reporter acknowledged there was nothing illegal on John’s part,” said Tim Echols, Oxendine’s campaign manager. “John continues to campaign across Georgia talking about the Contract with Georgia and offering positive solutions to the issues before Georgia.”

There seems to be a new scandal breaking every couple of days, with the end not yet in sight. Republicans may have made the best possible choice to replace the disgraced Glenn Richardson as speaker, but in the process they’ve put quite a lot of ammunition in the hands of Democratic Party operatives and campaign consultants.

The central figure in that tax break controversy was Rep. Larry O’Neal (R-Bonaire), who was then Perdue’s real estate attorney and today is one of the leading contenders for the speaker’s position relinquished by Richardson.

If O’Neal is elected by House Republicans at their Thursday caucus to become the new speaker, questions about that tax break received by Perdue in the form of HB 488 will continue to haunt the capitol hallways.

The odyssey of HB 488 began in February 2005 when O’Neal introduced the bill, which provided for the deferment of state taxes on property sales when similar property was purchased in another state. The bill originally applied to property sales from the year 2005 onwards.

The highly technical tax bill quickly passed the House and went to the Senate, where it was assigned to the Senate Finance Committee. While in the Senate committee, the bill was amended so that it would be retroactive to 2004 – and thus would apply to property transactions conducted that year on behalf of Perdue, whose real estate attorney was O’Neal. The tax break made possible by the retroactive clause amounted to about $100,000 for Perdue.

State Revenue Commissioner Bart Graham, who had requested the original version of HB 488 to make Georgia’s tax laws consistent with other states, said later he did not know about the retroactive amendment being added to the bill and did not request it.

The Senate passed the bill with the amendment that had been added in committee. O’Neal presented the new version of HB 488 to the House on March 29, 2005 and asked members to approve it, but did not mention that an amendment benefiting Perdue had been added to the measure. The House approved the amended version of HB 488 without dissent and Perdue signed the bill into law on April 12.

When Perdue signed HB 488, he did not disclose publicly that he would benefit from a sizeable tax break contained in the legislation. The tax break did not surface publicly in media accounts until August 2006, when Perdue was in the middle of a reelection campaign against Democratic Lt. Gov. Mark Taylor.

The news about the tax break hit like a bombshell in the campaign and was seized upon by Democrats as an issue to use against the incumbent governor.

Perdue avoided answering questions from the media about the tax break, instead sending out his campaign flack, Dan McLagan, to attack the Atlanta Journal-Constitution for reporting the story. Ironically, McLagan has since been working in the gubernatorial campaign of Secretary of State Karen Handel, who is using the fallout from the Republican controversies to support her own call for “ethics reform.”

O’Neal also kept a low profile at the time, limiting his public comments about the tax break legislation largely to reporters for the Macon newspapers.

He told a Macon Telegraph reporter that Democrats were criticizing the Perdue tax break because “It sells great for a political campaign . . . I think they couldn’t criticize the way we govern, and this is all they had.”

O’Neal also told the Telegraph at one point that Perdue and his staff had played no role in the measure that gave the governor the tax break. “My good name is worth a lot more than saving the governor $100,000,” O’Neal was quoted by the Telegraph. House Minority Leader DuBose Porter (D-Dublin) called the comments from O’Neal “unbelievable.”

The Perdue property dealings and tax break were widely criticized by Democratic operatives in the fall of 2006 but had little impact on the voters, who reelected Perdue over Taylor by a 20-point margin.

Shortly after the 2006 election, House Republicans met at the capitol to elect their officers for the next two-year term and closed ranks behind O’Neal, who was given the honor of formally nominating Richardson for another term as speaker.

Richardson lashed out at the state’s “liberal media” for their coverage of Perdue’s real estate dealings and said angrily, “If you attack one of us, you attack all of us, and we stand with you, Larry . . . We will not be swayed by attacks from the liberal media.”

At the same time Richardson was launching that attack on the media during the 2006 caucus meeting, he was also involved in his notorious affair with an Atlanta Gas Light lobbyist, a relationship that would later force him to resign as speaker when it was confirmed by his former wife.

In January 2007, a college student named Edward Chapman who had worked as a research staffer for the Georgia Democratic Party filed an ethics complaint against O’Neal over the HB 488 controversy.

Chapman alleged in his complaint that O’Neal, as the chairman of the House Ways and Means Committee, “used his position as a Member of the House to bestow a financial benefit upon a client of his private law practice.”

The O’Neal complaint was filed about two weeks after Democratic Party Chairman Bobby Kahn filed an ethics complaint against Richardson, alleging that Richardson had an “inappropriate relationship” with the Atlanta Gas Light lobbyist.

Both the Kahn complaint and the Chapman complaint were dismissed by legislative review panels without hearings or investigations being held.

The allegation in the Kahn complaint about Richardson’s relationship with a lobbyist has since been confirmed by Richardson’s divorced wife, Susan. She said in a Nov. 30 interview with TV newsman Dale Russell that Richardson had a “full-out affair” with the lobbyist during the period when Richardson was trying to get legislation passed that would have benefited the lobbyist’s employer, Atlanta Gas Light.

Just three days after Susan Richardson’s interview was aired on TV, Glenn Richardson was forced to step down as speaker, necessitating Thursday’s caucus vote on a new speaker.

The controversy over the Perdue tax break has become an issue in O’Neal’s campaign to become the new speaker. O’Neal addressed some of the points in the controversy in an email he sent to House Republicans this week.

O’Neal said, in part:

The canon of legal ethics prevents a lawyer from discussing legal work for past or present clients. As you know, I have done legal work for the governor. That has limited what I could say about the governor’s land matter and the legislation I sponsored.

However, the governor has for the first time released me to talk about all aspects of these matters, and the details I can share will show the extent to which this witch hunt has harmed my reputation unfairly.

The extent of my work for the governor has been greatly exaggerated. I currently do no legal work for him. In addition, I will be leaving my law firm on Friday of this week if you elect me so I can serve as a full-time speaker, and I will not have any legal clients except to conclude matters currently with my office.

I hope this answers any questions about the extent of my legal work for the governor.

On the specific tax legislation involved, I will begin with a summary of the legislation:

1. It was technical, involving interstate land exchanges, considered at that time unconstitutional anyway by the revenue department, which penalized only Georgia residents.

2. The change the law enacted had already passed in 49 states. Georgia was the last state to pass this law for its citizens.

3. It was retroactive, which has been made to be unusual but is common tax law practice, particularly when the legislation will ensure Georgians are treated the same as other states’ citizens, which is what we were doing with this bill.

4. It has been falsely claimed that only one taxpayer benefited from this bill. Hundreds of Georgians have had their taxes reduced by this bill, a fact that you may independently confirm with the Georgia Department of Revenue.

5. I, personally, did not benefit financially from this bill in any way.

6. Lastly the retroactivity complained of was done by an amendment actually added in the Senate so one must believe the Bobby Kahn machine that a representative can amend a bill in the Senate, which is now and was then against every rule of the Senate and the Constitution of the state of Georgia; hence impossible on its face or the “immaculate amendment.” . . .

. . . Even though Kahn and the Democrats failed to convince the voters of any wrongdoing in 2006, they did not stop. Kahn vowed to get the IRS to audit the matter.

What you do not know is that Kahn succeeded. An IRS audit was conducted after the election. Until now, I have not been able to discuss the results or even the existence of that audit. However, with Gov. Perdue’s permission, I can now tell you about audit’s results.

The IRS sent a team of federal auditors to conduct a full forensic audit of every aspect of this land issue transaction. It was a multi-week, full-blown, on-site examination.

The result was that the IRS made zero adjustment to the taxes involved and exonerated me once and for all for any wrongdoing in this matter.