Federal tax bill could mean massive state windfall for Georgia

Georgians may wind up paying a massive $3.6 billion more in state taxes over the next five years because of changes made last month in the federal tax code.

The Atlanta Journal-Constitution obtained a copy of the Deal administration’s estimate, which showed a huge windfall for the state.

That’s largely because the federal tax law touted by President Donald Trump and Congress limited or eliminated some of the deductions Georgians have used when figuring their state taxes in the past and made it far more likely that ratepayers will use the standard federal deduction, rather than lowering their state taxable income using itemized deductions.

So while many Georgians may pay less in federal taxes, they will wind up with bigger state tax bills.

State leaders across the country are trying to figure out what to do with the extra money: spend it on state programs or cut taxes. Georgia is likely to do neither, at least initially.

The administration's numbers are only an estimate, and Chris Riley, Gov. Nathan Deal's chief of staff, stressed that it will take time for the state to get a handle on the federal plan's true impact.

“There is a significant assumption that there is going to be a big windfall for Georgia, particularly in 2o20 and moving forward,” Riley said. “It’s hard to get real concrete data on how this is going to play out.”

Lawmakers will take up annual legislation, possibly as early as next week, to have the state’s tax code conform with federal tax law. The Deal administration, however, will ask legislators not to make any changes related to the federal tax plan passed in December until the state figures out the impact.

That means, if the estimate is correct, that state taxpayers would pay an additional $153 million this fiscal year, which ends June 30.

That figure jumps to $758 million in the next fiscal year, which starts July 1.

Deal leaves office in January 2019, and the question of what to do with the windfall will certainly become a major issue in this year’s campaign season. Most if not all candidates will likely run on a platform of cutting those taxes, and Riley said they could make those state tax cuts retroactive to this year.

Deal won’t make plans to spend the windfall by putting it in the state budget, in large part because he doesn’t know how big it will be.

“The last thing we want to do is have a special session in the fall and raise taxes or cut the budget,” Riley said. “Georgia prides itself in the fact that we are not one of the 29 states this year that had to go back in and cut its budget, nor are we one of the 22 states that had to raise taxes to have a balanced budget.”

The Deal administration hasn't gotten any pushback on its plan yet. House Speaker David Ralston, R-Blue Ridge, and Lt. Gov. Casey Cagle were briefed on it earlier this week.

Ralston’s spokesman, Kaleb McMichen, said: “Speaker Ralston was briefed on the estimate, and his initial reaction is to agree with the governor that a cautious approach to the projections is best. He will continue to review the information and consult with his leadership team … as the budget process moves forward.”

The Senate — where Cagle and state Sen. Michael Williams, R-Cumming, are running for governor; state Sen. David Shafer, R-Duluth, is running for lieutenant governor; and state Sen. Josh McKoon, R-Columbus, is running for secretary of state — may take a different view.

Senate Majority Leader Bill Cowsert, R-Athens, said, "I can assure you that the state Senate will be inclined to pass on any tax savings to our citizens and to make tax cuts to offset any inadvertent windfalls to the state."

While Deal's tax bill, which will be filed next week, won't dramatically change the state's income tax structure, it would bring back the sales tax exemption on jet fuel, something that was done away with in 2015 when Delta Air Lines officials got on the wrong side of lawmakers.

Eliminating the taxes would be a $35 million break for Delta and other airlines.

Riley said the state isn’t worried that Delta will move its home base if it doesn’t get the tax break. But he said it could help persuade the airline to provide more direct international flights.

“In an economic global world, we need more of an edge on direct flights, we need direct flights from here to around the globe, and right now those are originating at LaGuardia, in Minneapolis, Dallas-Ft. Worth, Chicago, and we need to originate them in Atlanta,” he said.

He also said Atlanta is one of few hub airports with a sales tax on jet fuel, and that the Federal Aviation Administration has told states they need to use any such tax money on airport improvements, something that hasn’t always been done.

The fuel tax cut would have an impact on local governments as well.

The fuel tax break was approved by lawmakers in the mid-2000s when Delta was in financial distress. Once Delta recovered, critics called it a special-interest tax break for a thriving local company.

In a statement, Delta said of the 21 states that are home to large hub airports in the U.S., Georgia imposes the fourth-highest state tax on fuel.

“Delta appreciates the governor’s recognition that strong air service is one of Georgia’s most powerful engines for economic growth,” the statement said.

“The governor’s proposal to exempt sales tax on jet fuel will level the playing field with other states, position Hartsfield-Jackson Atlanta International Airport for continued growth, and benefit companies throughout the state whose businesses depend on global air service, all of which will keep Georgia competitive for the years ahead.”

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