The Georgia House is considering eliminating the “double deduction” of state income taxes some Georgians can take on their tax returns.
If approved, the measure could raise taxes $130 million to $220 million on Georgians who itemize their deductions, but it could become one of several elements of broader legislation aimed at lowering income tax rates, a top priority of House leaders.
House Bill 1002 by House Ways and Means Chairman Brett Harrell, R-Snellville, would prevent Georgians from deducting the state income taxes they pay on both their federal and state income tax returns. Taxpayers could only deduct their state income taxes on their federal returns, under the measure.
Now, they can take the deduction on federal forms and use that reduced taxable income when they do their state taxes. Georgia is one of few states that allow that.
That double deduction can be lucrative for taxpayers who itemize their deductions rather than use the standard deduction.
More than 80% of Georgians use the standard deduction to reduce the amount of income that is taxed.
Harrell said his measure would raise state revenue -- and increase taxes on those who could no longer use the double deduction -- by $220 million.
The Georgia Budget and Policy Institute think tank, which opposes state tax cuts for upper-income Georgians, estimated that eliminating the double deduction would raise $130 million in tax revenue. It would increase taxes on middle-income Georgians who itemize their deductions about $200, the group said.
House leaders are pushing for a second cut in recent years to the state income tax rate, and a broader tax push may come next week. Under legislative rules, bills have to pass at least one chamber by Crossover Day -- set for Thursday -- although there are ways around the rules.
House Speaker David Ralston, R-Blue Ridge, recently told reporters he viewed a second cut in the income tax rate as "a commitment we made to the taxpayers two years ago. I think they expect that Republicans cut taxes."
Lawmakers voted in 2018 to reduce the top state income tax rate from 6% to 5.75% in response to federal tax changes that, officials thought, would force many Georgians to pay higher state taxes.
The 2018 legislation set up a second vote, in 2020, to lower the rate again to 5.5%.
The institute said lowering the rate could cost the state, and save taxpayers, about $615 million a year. A vast majority of that, the group said, would go to high-income Georgians and corporations.
Gov. Brian Kemp ordered state agencies to cut spending this year after revenue collections slowed in 2019. The governor's aim was to prepare the state in case of an economic downturn and make money available for his top priorities, such as a $2,000 pay raise for teachers.
Kemp did not reduce his budget plan and revenue estimate to account for the cost of another cut to the income tax rate.
So if lawmakers are going to reduce the income tax rate, they likely will have to find ways for the state to take in more money as well, such as ending the double deduction.
Earlier this session, the General Assembly approved a bill to bring in more revenue through sales taxes on web- and app-based businesses. This week, the Senate approved a new fee on Uber, Lyft and taxi rides. And the Senate is pushing legislation to pay a contingency fee on collections to companies using data analytics to go after delinquent taxpayers.
An Atlanta Journal-Constitution poll in January found that about 50% of voters favor keeping the current state income tax rate, against roughly 38% who want to see it cut again. An additional 9% said taxes should be increased. The remainder either said they did not know or refused to respond.
