Bill to slash state income tax rate moving through the Georgia House

Georgia House leaders are moving to lower the state’s top income tax rate in what could be an important first step toward significant reductions in how much Georgians pay.

A new report said the first step, House Bill 329, would save Georgians about $154 million a year, with three-quarters of that savings going to those earning more than $97,000 a year.

The state’s calculations put the savings at a much more modest $78 million over four years.

But Kelly McCutchen, president of the conservative Georgia Public Policy Foundation and a longtime proponent of the change, said it is an important first step that could lead to further cuts in tax rates in coming years.

“I see this as radical incrementalism,” he said.

The House Ways and Means Committee Thursday approved House Bill 329, which would replace the current graduated state income tax structure with a flat rate of 5.4 percent.

The top rate is currently 6 percent, while the lowest is 1 percent.

The bill would also create an earned income tax credit for low-income Georgians to make up for them paying higher rates, and it would eliminate a provision in state law that allows Georgians who itemize their deductions when they fill out their tax returns to write off their state income tax payments.

The left-leaning Georgia Budget and Policy Institute said the measure could save Georgia taxpayers — and cost the state — about $154 million. That estimate comes from the Washington-based Institute on Taxation and Economic Policy.

Wesley Tharpe, the Georgia institute’s research director, said under the bill, some single low-income Georgians would wind up paying higher income taxes, while low-income families would wind up paying less.

But Ways and Means Chairman Jay Powell, R-Camilla, the bill's sponsor, said if approved, it would not mean a huge windfall or tax increase for many Georgians.

“Pretty much for most taxpayers, it doesn’t make a big difference,” Powell said. “Some people may gain $30, some people pay $20.”

Because of the elimination of the income tax write off, according to the state, the measure would have minimal overall impact on state finances.

Tharpe’s group disagrees.

While Tharpe praised some parts of the bill — such as the earned income tax credit — his group said the bulk of the tax cut would go to upper middle-income and wealthy Georgians. Those taxpayers also pay the most in state taxes.

The institute estimates that taxpayers who make at least $536,000 a year would claim 37 percent of the tax cut — about $2,576 per year.

Cutting the top state income tax rate has been a goal of Republican leaders for more than a decade. Virtually every session a lawmaker has pushed a bill to create a flat income tax rate that is lower than the current maximum rate. The Georgia Senate passed a bill last year to cut the income tax rate, but it stalled in the House.

McCutchen called it “good tax policy, whether you are liberal or conservative. It broadens the base and lowers the rates.”

McCutchen said that many small businesses pay personal income rather than corporate income taxes.

“This would be great tax relief for hundreds of thousands of Georgia small businesses,” he said.