Gov. Nathan Deal, flanked by Lt. Gov. Casey Cagle (left) and House Speaker David Ralston, announced Tuesday that a compromise had been reached on a plan for dealing with the massive state windfall created by the federal tax law. The Georgia House approved the plan, House Bill 918, on Thursday. It calls for a reduction in the state income tax rate and an increase in the standard deduction. BOB ANDRES /BANDRES@AJC.COM

Georgia House quickly backs plan to cut state income tax rate

The Georgia House quickly passed Gov. Nathan Deal’s plan Thursday to wipe out a massive potential increase in state income taxes — an unintended side effect of federal tax changes Congress approved in December.

The House voted 134-36 to pass House Bill 918, which would not only eliminate the potential revenue windfall but cut state income taxes on Georgians by $516 million over five years.

It also would eliminate sales taxes on jet fuel, a huge tax break for Delta Air Lines and other carriers.

“This bill will allow Georgians to keep more of their hard-earned dollars in their wallets,” said state Rep. Chuck Efstration, R-Dacula, a House floor leader for Deal.

A week after 17 people were gunned down at a Florida high school, several hundred gun-control advocates gathered at Liberty Plaza Wednesday to urge lawmakers to make changes to the state's firearms laws.

But House Minority Whip Carolyn Hugley, D-Columbus, said the chamber was moving too quickly on a measure introduced 48 hours earlier without a fiscal note outlining the total cost of the legislation.

She cautioned colleagues that they were about to support a bill without knowing the long-term impact on state services.

“I know we are excited about giving money back to hardworking Georgians,” Hugley said. “At the end of the day, it’s not Christmas. If we treat this like Christmas, we are going to have the January remorse if we can’t pay our bills.”

The measure has been endorsed by Lt. Gov. Casey Cagle, the Senate’s president, and is expected to move through that chamber quickly as well.

The plan would cut the top state income tax rate — the rate most Georgians pay on a majority of their income — from 6 percent to 5.75 percent starting next year.

The rate would be further reduced to 5.5 percent in 2020 if the General Assembly gives its OK, something that is almost certain unless there is a major recession.

In addition, the proposal would double the standard deduction for Georgians. For married couples filing joint returns, the deduction would go from $3,000 to $6,000.

The road to HB 918 began in December, when Congress passed and President Donald Trump signed into law changes that guaranteed federal income tax cuts for many Americans.

The federal law produced a potential windfall for states because it limits or eliminates 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 will pay less in federal taxes, at least some could have wound up with bigger state tax bills unless lawmakers made changes in Georgia’s tax code as well.

The estimated windfall escalated several times as state officials tried to figure out the impact of the federal law. By Tuesday, when Deal and legislative leaders announced what would be in HB 918, the estimated windfall had hit $5.2 billion over five years.

“Without this bill, there is no doubt our citizens would have seen a large tax increase,” said state Rep. Chuck Martin, R-Alpharetta.

Deal initially said he wanted lawmakers to wait until the state’s 2019 legislative session to figure out how to address the windfall because the state can now only estimate the impact of the federal law. But Deal changed his mind after lawmakers — most of whom are either running for higher office or seeking re-election this year — began calling for tax cuts.

State income taxes are the single biggest source of revenue for the state, and officials in the Deal administration initially said the governor would likely fight any effort to cut the rate and veto any bill that contained rate cuts.

Leaders in both chambers called for a cut in the income tax rate, and Deal said he was eventually convinced it was doable without shortchanging future state budgets.

The bill’s net effect to state revenue — $516 million over a little more than five years — is about a $100 million cut per year. Most years state tax collections increase $750 million to $900 million from economic growth alone, so supporters see the cut as fiscally reasonable.

The governor said state corporate income tax rates have not changed since 1969, and individual income tax rates have been the same since 1937. The standard deduction hasn’t changed since 1981. If the deduction for a married couple were adjusted for inflation since then, it would be worth about $8,500.

The jet fuel provision would save airlines and cargo companies more than $50 million. The biggest beneficiary would be Delta, which said the tax break will make Atlanta more competitive for flights with other hub airports across the country where jet fuel taxes aren’t charged.

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