It’s an election year, and that means lawmakers probably can’t end the 2016 session without some kind of tax cut, or at least a last-minute debate on one.
And state Senate Finance Chairman Judson Hill, R-Marietta, has just the ticket for election-wary politicians.
The Senate could vote as early as Monday on proposals from Hill. One, Senate Resolution 756, is a proposed constitutional amendment that would make a small reduction in the state’s 6 percent maximum income tax rate if the state has relatively full reserves and revenue collections continue to rise.
The other, a reworked House Bill 238, would cut the maximum state income tax from 6 percent to 5.4 percent, reduce the number of itemized deductions, raise personal exemptions and eliminate the state’s corporate net worth tax that companies pay.
Both measures overwhelmingly passed his committee this week. Hill calls them a conservative approach to tax reform.
“Would I like to do more?” Hill said. “I would, but something is better than nothing.”
House members filed a big tax overhaul bill last session, but it went nowhere.
Gov. Nathan Deal warned lawmakers off any major tax cut bills this session, saying his goal was to build the state’s reserves to $2 billion before he leaves office. There has been little talk of tax cuts this session beyond the usual special-interest breaks.
But state tax collections — and state spending — are at record levels, and some Republican lawmakers up for re-election this year may be feeling pressure to cut taxes after backing a $900 million fuel and hotel tax increase last year to pay for transportation improvements.
And late-session bids for major tax cuts — both for individual Georgians and corporations — have long been common.
Former House Majority Leader Jerry Keen, who helped engineer a last-minute $142 million property tax break in 2007 that was later vetoed by then-Gov. Sonny Perdue, said such measures typically help the sponsor and main backers beat off opposition in their districts as much as anything else.
But he added, “As hard as it would be in this climate to pass major tax cuts, if it comes to the floor (of the chambers), it’s hard to vote no in an election year.”
Senate President Pro Tem David Shafer, R-Duluth, was behind a proposed constitutional amendment that capped the maximum state income tax rate at 6 percent in 2014, also an election year. Voters overwhelmingly approved that amendment. Shafer and Hill are longtime supporters of cutting, if not eliminating, Georgia’s income tax.
Robert Buschman, a senior research associate with Georgia State University’s Fiscal Research Center, told Hill’s committee this week that the bill to reduce the top state income tax to 5.4 percent would cost the state $263 million in lost revenue in 2018, rising to $299 million in fiscal 2021.
That’s barely 1 percent of the money the state collects in taxes each year.
About $50 million would be lost by eliminating the state’s corporate net worth tax. He said more than 60 percent of businesses pay less than $100 a year in corporate net worth taxes.
Kelly McCutchen, the president of the conservative Georgia Public Policy Foundation, said a median-income family of four in Georgia would not pay any state income taxes on about two-thirds of their income under Hill’s bill.
“I don’t think I have seen a proposal in the last 20 years that is more fair than this proposal,” he said.
Hill said the state ran a surplus of more than $1 billion last year. “It doesn’t look like we needed all those dollars,” he said.
Deal and House and Senate budget writers would likely disagree. Costs continue to rise for both school and health care programs that eat up a huge portion of this year’s record $23.7 billion budget. Deal is also hoping to have money available in the next few years to revamp the state’s school funding formula.
Wesley Tharpe, a senior policy analyst with the left-leaning Georgia Budget and Policy Institute, said a sizable chunk of the increased state revenue this year has come from the new fuel and hotel taxes and is dedicated to road and bridge projects.
He said Georgians already pay among the lowest state taxes in the country, and that Hill’s measure could cost the state as much as $442 million a year.
“Those are dollars that are not going to be available for key state needs, like schools,” he said.
Under the plan, Tharpe said, personal income taxes for those earning less than $100,000 a year would drop less than $100. The wealthiest 1 percent of Georgia households would get a tax cut of nearly $2,850, on average, it said.
With all 236 lawmakers facing re-election this year, it’s hard to rule out a last-minute push for legislation such as Hill’s, even with Deal and many top lawmakers failing to get behind a major tax cut so far.
“Election years are always unpredictable,” Tharpe said. “At the end of the day, I think voters are smarter than they are given credit for. I think voters would look at this and say, ‘Yeah, it’s a tax cut, but what’s the catch?’ “
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