Gov. Brian Kemp didn’t mention it in his State of the State address Thursday, but his budget proposal may make it more difficult for lawmakers to cut the state income tax rate for a second time in three years.
But it’s far from impossible.
Legislators approved an election-year reduction in the top income tax rate from 6% to 5.75% in 2018. In that bill, they targeted 2020 for a vote on reducing it again, to 5.5%.
Opponents have criticized the proposed second cut, saying it would give only a few dollars a month to the average Georgian but possibly thousands to big earners. Supporters say it would let Georgians keep more of their money.
However, at the Capitol, where state finances are tight, it would mean the loss of about $550 million a year in revenue. That's in a session where Kemp has already ordered up 6% budget cuts for many agencies for fiscal 2021, which begins July 1.
Kemp did not account for the loss of revenue a second income tax cut would bring in his budget plan for fiscal 2021. The governor sets the revenue estimate for the state, and legislators can’t spend more than Kemp says will be coming into government coffers. But they can spend less.
So if lawmakers decide to cut income tax rates again, they may have to either come up with $550 million more in budget cuts or find ways to raise other revenue and get the governor to sign off. Or a combination of both.
That could mean cuts to areas that have been largely spared so far, such as education or public health care programs like Medicaid.
The biggest addition Kemp made in his budget plan was the more than $350 million it would cost to give teachers a $2,000 raise. Teacher pay raises are extremely popular with lawmakers, as was evident in 2019 when Kemp had no problem pushing through a $3,000 teacher pay hike.
Approving the rate cut could also mean lawmakers will be passing more bills like the one that was approved Thursday, which would allow the state to collect sales taxes on more online and app-based sales and services.
Lawmakers also could approve the tax cut but delay its implementation. So the rate would drop a year or so from now, as opposed to right away, and the 2021 budget wouldn’t be effected.
Publicly Democrats, and privately some Republicans, question doing another income tax cut at a time when state revenue collections have been slow and the governor is ordering budget cuts.
“We saw two years ago, when they changed the federal tax code, some people came to us and said we were going to have a billion-dollar windfall, an $800 million windfall, that we would come into the 2020 session flush with money,” said Senate Minority Leader Steve Henson, D-Stone Mountain. “We found that is not the case. “
But House leaders are also fighting to keep their majority in the chamber this election year, and tax cuts are always popular with the Republican base.
“I view the income tax cut as a commitment we made to the taxpayers of Georgia in that we would do half of it in one year and come back and do another half so they would get a full half percent cut,” said House Speaker David Ralston, R-Blue Ridge, before the session. “I am hopeful we can do that. I know there’s a lot of support in the House to do that.”
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