Tax Cut Fever in Georgia

A push to cut taxes for the wealthy that would pinch funding for Georgia schools, roads, and other services may have just become an even more dangerous effort to eliminate Georgia’s personal income tax and devastate the state’s ability to fund public investments.

Georgia lawmakers, spurred on by the fact that all 236 of them are facing re-election this year, are considering drastic changes to their state’s personal income tax. One proposal could entirely repeal the income tax.

One of the bills under consideration (HB 238) contains some positive provisions, such as limiting deductions that are primarily used by high-income households. But the bill would also flatten and reduce the state’s income tax to a single rate of 5.4 percent (the top rate is currently 6 percent). Lawmakers are selling this proposal as a tax cut for most Georgia families. But an Institute on Taxation and Economic Policy analysis of the plan reveals that most working families would receive minimal benefit. More than half of the resulting tax cuts would flow to just the top 20 percent (PDF) of Georgia residents, and even then the benefits are weighted most heavily for the very richest. Families earning less than $100,000 would receive an average tax cut of $100 while the top 1 percent of families would get an average cut of $2,850. Meanwhile, the overwhelming majority of Georgia families would lose because the state’s ability to fund crucial services would be seriously harmed. Nonetheless, the bill has passed the House and advanced to the Senate Rules Committee and appears to be on a fast track to passage.

Meanwhile, the state Senate has approved a measure (SR 756) that would amend Georgia’s constitution to force further income tax cuts when certain ‘triggers’ are met. The original version of this proposal would have brought the rate down in 0.2 percent increments until it reached 5 percent. But in a hastily conceived attempt to compromise before the state’s ‘crossover’ deadline on Monday, lawmakers changed the bill (PDF) in such a way that, due to its ambiguous wording, could result in the complete elimination of the state’s income tax in the long-term. While some observers argue that the bill lacks a minimum, or “floor” tax rate, others say that this is not the case and that rate cuts would stop once the state’s tax rate reached 5.8 percent. Even under that generous reading, however, revenues would fall by some $350 million and roughly 70 percent of the benefit would go to the top 20 percent of Georgia households.
 
Georgia’s pending tax cuts are part of a broader, disturbing trend at the state level that seeks to tilt already unfair state tax codes even more heavily in favor of the wealthy. In the case of Georgia, that effort would also come with a large price tag: the tax cut proposals under consideration would result in an annual revenue loss of $281 to $442 million (or nearly $10 billion if LR 756 ultimately eliminates the income tax). A revenue loss of that magnitude would undoubtedly jeopardize the state’s ability to adequately fund public priorities.