With the battle settled over who has more clout at the Capitol — Delta Air Lines or the National Rifle Association — the Georgia House and Senate overwhelmingly backed legislation Thursday to cut state income tax rates.
The final votes were largely a formality and gave Republican lawmakers and candidates what they wanted this election year — a chance to brag about cutting state income tax rates.
Gov. Nathan Deal has already committed to quickly signing the legislation into law. That will likely happen early next week.
House Bill 918 passed the Senate 44-10 and House 135-24 after Senate leaders stripped a provision to eliminate sales taxes on jet fuel — something Delta had coveted.
“What is important is not that (tax break) anymore but that Georgians are going to get their tax relief, and we couldn’t let that fall victim to everything that was going on with Delta,” House Speaker David Ralston, R-Blue Ridge, said after the House gave the measure final approval.
The jet fuel break — worth more than $40 million to Delta and millions to other airlines — was axed after the Atlanta corporate giant publicly nixed a discount for NRA members over the weekend.
Lt. Gov. Casey Cagle, the Senate’s president and a top Republican candidate for governor, led the charge to kill the tax break after Delta’s announcement. A Republican state senator and another gubernatorial candidate — Michael Williams — dubbed the tax break corporate welfare before the Delta vs. NRA tiff, and he upped his criticism this week.
Cagle made national news Monday when he tweeted that he’d kill the tax break unless Delta changed its stance on the NRA discount. He and Williams hit the rounds of news shows slamming the airline over its decision.
Ralston said Delta’s timing — announcing the decision as the tax break on jet fuel was a vote away from being approved — was poor.
“I hope they are better at flying planes than timing PR announcements,” Ralston said.
But he echoed Deal’s concerns that the national political flame-fanning by some lawmakers didn’t help Georgia’s image, particularly at a time when it is courting Amazon, hoping to become the tech giant’s second headquarters.
“It was not one of our better days as a state,” he said. “I think there are better ways of expressing policy differences than we chose.”
What was left of HB 918 was the main purpose of the measure: a cut in rates to eliminate what was expected to be a massive state windfall from the tax plan Congress passed in December.
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 would 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 last week, when Deal and legislative leaders announced what would be in HB 918, the windfall had hit $5.2 billion over five years.
HB 918 will wipe out the potential state windfall and cut taxes on Georgians by an estimated $330 million over the next half-decade.
A fiscal accounting said Georgians would still be paying more to the state — even after the new rates — until fiscal 2021. Then the state’s tax take would drop under the bill.
The net impact would be an increase in businesses taxes but a $1.4 billion cut in individual income taxes — combined — in fiscal 2021-2023.
The bill cuts the top state income tax rate — the rate most Georgians pay on a majority of their income — from 6 percent to 5.5 percent over two years.
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.
State Sen. P.K. Martin, R-Lawrenceville, a Deal floor leader, called the measure a “historic tax cut” that would help Georgians keep more of what they earn.
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.
“With the passage of this historic and sweeping income tax cut, Georgia families will have more take-home pay and greater opportunities,” Cagle said after the Senate vote.
The governor said he would still like lawmakers to pass a separate bill eliminating jet fuel taxes, but Cagle quickly quashed that idea. When asked whether he’d change his mind on the issue, the lieutenant governor said, “I don’t see any wiggle room, no.”
Deal was initially reluctant to reduce the income tax rates, saying he wanted to wait a year until the state is more certain of the impact of federal tax changes. He 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.
With party primaries only a few months away, Republican leaders were eager to brag on the campaign trail about cutting taxes.
Senate Minority Leader Steven Henson, D-Stone Mountain, said state tax cuts such as those included in HB 918 shove costs to local cities, counties and school districts for services.
He suggested that some of the state income tax windfall — which will continue for a few years — should go to pay raises for teachers and state staffers, to eliminate the $166 million “austerity cut” built into the state’s school funding formula, or go into transit or infrastructure projects.
He also said lawmakers should consider a tax credit for low-income Georgia families.
“I think when we look on our decisions today … we missed an opportunity,” Henson said. “I can’t vote for it (the bill) because it doesn’t go to what we need to be doing.”
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