Report: A new cut in Georgia income tax would mean little to many

State Rep. David Wilkerson, D-Austell, a member of the House Budget and Fiscal Oversight Committee, thinks it’s a bad idea for Georgia lawmakers to reduce the top state income tax again next session. BOB ANDRES / BANDRES@AJC.COM

State Rep. David Wilkerson, D-Austell, a member of the House Budget and Fiscal Oversight Committee, thinks it’s a bad idea for Georgia lawmakers to reduce the top state income tax again next session. BOB ANDRES / BANDRES@AJC.COM

State lawmakers have seldom seen a tax cut they didn’t vote for, but legislators will be asked during the 2020 session to approve a reduction in the top income tax rate that a new report says will do very little for most Georgians.

Lawmakers will be voting on whether to reduce the state’s top income tax rate from 5.75% to 5.5%. That may not sound like much, but it will cut state revenue — and save Georgians — about $550 million a year, according to a new report by the Georgia Budget & Policy Institute think tank. Most of those who will save enough to buy groceries for a week will be in households earning well over $100,000 a year, according to the institute.

The cut will be the second one in two years: lawmakers voted last year to reduce the top rate from 6% to 5.75%. In the same legislation, it set up the 2020 vote.

“If you were to enact this second phase of tax cuts, the median taxpayer would get about $42,” said Danny Kanso, an analyst for the institute who last year worked on the tax legislation the General Assembly passed while serving as an aide to Republican Lt. Gov. Casey Cagle.

Households earning more than $500,000 a year, he said, would on average get almost $2,800 a year from the cut.

“This actually would not be a true tax cut for most people,” Kanso said. “It would be a very minor change that the state can’t afford.”

But 2020 is an election year, and the Republican majority in both chambers will almost certainly push for the tax cut.

"I think there would have to be some extenuating circumstances not to," said House Appropriations Chairman Terry England, R-Auburn. Something like another Great Recession. Which he doesn't see happening in 2020.

“I do think we are going to have a slump,” England said, “but I don’t see anything nearly like what we had.”

However, the Legislature could decide to delay implementation of the cut if the economy turns sour.

The vote will come at a time when Gov. Brian Kemp is already calling on state agencies to cut spending to pay for some of his priorities, including another pay hike for teachers.

Kemp got lawmakers to agree last session to budget a $3,000 pay raise for teachers — a big first step toward keeping his campaign pledge to raise educator pay by $5,000.

But the governor has also dealt with an uneven revenue picture. Tax collections fell, rose and stalled at various times during the first six months of 2019. The administration was worried enough that it decided to take a month off paying into the state health insurance program for teachers, state employees and retirees to make sure the state remained in the black for fiscal 2019, which ended June 30. The move saved the state and local school districts about $235 million.

Kemp administration officials say they have already factored the yet-to-be-approved 2020 tax cut into their budget and revenue plans.

The legislation last year was in reaction to the federal income tax measure that Congress passed in 2017. While Congress' bill cut federal income taxes, it had the potential to raise state income taxes because it limited or eliminated some of the deductions Georgians used when figuring their state taxes and made it far more likely that taxpayers would use the standard federal deduction, rather than lowering their state taxable income using itemized deductions.

Without taking action, it would have produced a windfall for the state.

Kanso’s report said the measure passed by Congress will save Georgians about $43 billion between 2020 and 2025, a vast majority of which will go to households in the top 20% of income. That’s not surprising since most of the time the government cuts top rates, the biggest beneficiaries are the wealthiest because, at least in some cases, they pay the most taxes.

In reacting to the federal law, the General Assembly decided to double the standard deduction and reduce the top state income tax rate from 6% to 5.75%, and then 5.5% next year if lawmakers approve a resolution.

Kanso’s report said a less costly and fairer way to cut taxes would be to approve a nonrefundable earned income tax credit, which would reduce taxes on those in households earning below about $55,000 a year. Most of those Georgians get little from cutting the top rate, Kanso said.

Legislation has already been filed to create such a tax credit, which the institute said would cost about $130 million, versus the $550 million it would cost to cut the rate for all Georgians.

“If your goal is to cut taxes for people who aren’t receiving a tax cut, or to grow the middle class, or to make the tax cut more fair, you are not going to achieve any of those goals by just cutting the top income tax rate,” Kanso said.

Still, Kyle Wingfield, the president of the Georgia Public Policy Foundation, said he would be surprised to see the General Assembly turn down a chance to cut the top tax rate, especially after lawmakers pretty much promised to do so in 2018. He also doesn’t see Kemp’s call for budget cuts changing the equation.

“The cuts they are doing are more about reflecting their priorities about how they want to govern,” Wingfield said. “My understanding is he is going on the expectation that the Legislature will follow though on the promises they made to lower the top income tax rate and keep the state competitive.”

But state Rep. David Wilkerson, D-Austell, a member of the House Budget and Fiscal Oversight Committee, said he can't see a lot of Democrats backing the push to lower rates again, not with the state needing funding for a wide range of things, from education to environmental protection.

“There is no excuse for us to pass it,” Wilkerson said. “It’s not like we would be raising taxes. … It would be leaving it the way it is. We don’t have to make massive budget cuts, we keep education (funding) the way it is, we keep environmental protection from being cut. I think it would be reckless for us to do it.”

Average tax break by income

Georgia lawmakers are scheduled to decide during the 2020 session whether to lower the state’s top income tax rate from 5.75% to 5.5%. Below is an estimate of what that would mean, by income bracket. Each of the income ranges includes about 960,000 Georgia households.

$0 to $23,000 — $11

$23,000 to $38,000 — $29

$38,000 to $63,000 —$59

$63,000 to $108,000 —$114

$108,000 and up —$459

Source: Georgia Budget and Policy Institute

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