Georgia tax cut could hit $2 billion, but maybe not by 2029
A major state income tax cut signed by Republican Georgia Gov. Brian Kemp as he seeks reelection could eventually total more than $2 billion, but the reductions may only happen by a 2029 target date if state revenue holds up.
For Kemp, Tuesday’s signing was a tax-cutting triumph as he touted not only the newly flat income tax, but also a $1.1 billion income tax refund and the zeroing out of nearly $400 million in fuel taxes for more than two months.
“We’re doing our part to lessen the pain on people’s wallets here in Georgia,” Kemp said. “And today we will put into place a more long-term system of relief. I strongly believe that government should take in the very least amount possible needed to serve the people properly.”
Kemp signed the tax cut in former U.S. Sen. David Perdue’s hometown of Bonaire at a barbecue restaurant once featured in a Perdue campaign ad. Perdue is running against Kemp for the Republican nomination for governor and early in-person voting starts Monday for the May 24 primary. Democrat Stacey Abrams awaits the winner.
House Bill 1437 would create a flat income tax of 4.99% by 2029 or later. The current tax has a top rate of 5.75% with lower brackets below there. The measure delivers an immediate flat tax of 5.49% on Jan. 1, 2024.
After that, the measure calls for the tax rate to fall one-tenth of 1% each year, reaching 4.99% by 2029. But tax cuts would pause any year state revenue does not grow 3%, any year revenue is lower than in the five previous years, or any year the state does not have enough money in its savings account to cover the cost.
Those requirements aim to ensure there’s enough revenue for state services. But pauses caused by lagging revenue could bring pressure to reconsider the approach or to bolster revenue by curtailing business tax breaks.
House Ways and Means Committee Chairman Shaw Blackmon, a Bonaire Republican, said Tuesday that Georgia would have met all three requirements in only six of the last 12 years. It would have easily met the standards in the 2021 budget year, when revenues soared thanks in part to federal COVID-19 aid that propped up spending and employment.
For his part, Perdue espouses gradually abolishing the entire state income tax, which contributes nearly half of Georgia’s $30 billion in revenue. Republican House Speaker David Ralston and others reject that, saying it would devastate state services.
Weeks after it passed, Blackmon said there’s still no official estimate for the cut’s total cost. The liberal-leaning Georgia Budget & Policy Institute projects a total cost of $2.04 billion.
The cut would cost about $450 million in the first year. It would increase the standard exemption on how much someone could earn before beginning to pay taxes. A single taxpayer or head of household would get a $12,000 exemption immediately. Married couples filing jointly would get an exemption that would grow to $24,000 by 2030. Taxpayers could deduct $3,000 for each child or other dependent.
That’s an attempt to avoid higher taxes on low-income earners, but the Georgia Budget & Policy Institute’s Danny Kanso said most benefits will go to the highest earners. A GBPI analysis using modeling by the Institute on Taxation and Economic Policy shows 39% of benefits would flow to the top 5% of Georgia tax filers — households making more than $253,000 a year. The bottom 80% of households — making less than $109,000 — would get 32% of benefits.
Georgia’s state and local taxes already take a larger share of poor people’s income than rich people’s income. Kanso said the cut would make taxes even more regressive. Georgia Democratic Party Chair Nikema Williams called it “a boon for the wealthy.”
Both Kanso and Kyle Wingfield, CEO of the conservative-leaning Georgia Public Policy Foundation, agree that the 4.99% rate may not arrive by 2029.
“If you look at all the triggers, I’m not sure that hitting all three of them five or six years in a row will necessarily happen,” Wingfield said.
The bill requires a review of other tax breaks, after Republican Senate Finance Committee Chairman Chuck Hufstetler of Rome unsuccessfully proposed limiting the $1 billion-plus Georgia gives to movie and television productions each year. That report is due by December 2023, just before the first income tax cut.
Kemp said he’s committed to the review, but it’s not clear if House leaders share the Senate’s interest in limiting tax breaks. Blackmon said the House wants to show “fiscal responsibility.”
The other option, if the state does not meet revenue goals, could be to discard them, Wingfield said.
“If we’re not hitting the triggers fast enough, but the state’s revenues and fiscal picture are still stable or sustainable, then you could look at expediting some of those down the road,” he said.
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