Eliminating Georgia’s income tax might be popular, but it’s not realistic
Economists have a favorite saying: There is no free lunch. This aphorism is quite familiar to all of us bill-paying, taxpaying adults, and we need to demand a political dialogue worthy of our pragmatism.
At its most basic, this means challenging our elected officials to explain the trade-offs whenever they promise political goodies. And if they are not going to provide an answer, we need to take a beat to think about likely scenarios before registering support for a policy through our voice or votes.
Most recently, Lt. Gov. Burt Jones’ “bold” plan to “eliminate the state income tax” caught my eye.
Unlike at the federal level with its massive deficit spending, Georgia doesn’t have a similar “credit card option.”
While the state could blow through some of its $16 billion in reserves to cover tax cuts for a year or two, in the end, states have to balance their budgets — so eliminating or even somewhat reducing the state’s income tax revenues will have much more immediate consequences.
Simple math shows how income tax plan would crush state budget
In fiscal year 2026, the income tax is projected to make up over half of Georgia’s general fund revenues, according to the Georgia Budget and Policy Institute.
The personal income tax is around 44%, and corporate income tax is 9%. Presuming that the lieutenant governor is talking about both, this makes up a $19 billion chunk of Georgia’s $32.5 billion state general funds budget.
Eliminating the income tax would create a hole in the state budget equivalent to 58% of its expenditures, and no amount of economic growth or lift from a tax cut will even come close to covering shortfalls of this magnitude — assuming there is any benefit at all, given the trade-offs required.
I was director of Georgia’s Senate Budget and Evaluation Office during the Great Recession. As someone who personally helped walk the Legislature through the massive cutback budgets required during that time, I remember struggling to get legislators to make even a $100,000 cut to an agency, even as the state was trying to fill billion-dollar holes. Ultimately, the legislators grit their teeth and made the hard choices, but few would choose to repeat this experience.
Budget math is simple math: You add and subtract. Where exactly are the savings going to come from to fill a hole of this magnitude or even a more modest reduction in the income tax? Anyone advocating for this or similar proposals owes us an explanation of how it will add up.
State can make up the difference by cutting education or health services
On the spending side, the state of Georgia has several major lines of business, but its No. 1 spending priority is education. Over half of the state funds budget is education: PreK-12 is 38% and higher education makes up 14%.
While school districts are also funded through local property and sales taxes, on average, around 40% Georgia’s funding for schools comes from the state. Further, the state funds are distributed with a substantial focus on shoring up investment in rural school districts that do not have the strong property tax base that you find in metro Atlanta.
The city of Atlanta schools receive an estimated 15.6% of their total revenues from the state, while rural Colquitt County receives around 54%.
Meanwhile, the state university system and technical colleges were a major place for cuts during the Great Recession. During this period, the revenue mix for the university system went from around 75% state-funded to around 50% state-funded, meaning that our universities became much more reliant on tuition. This phenomenon was national and is one of the primary reasons for rapidly rising tuition at state universities over the past decades and has contributed to the student debt crisis.
The other major state business is health care, mostly our notoriously stingy Medicaid program. Combined, education and health care make up 73% of the total state funds budget.
The rest, corrections, courts, transportation, human services, parks and wildlife, agriculture, labor, etc., are extremely important but, in terms of spending, are pocket change. Meanwhile, I don’t think anyone would suggest that Gov. Brian Kemp has been profligate with state funds, so there is not a lot of “fat” that can be easily cut, including in Medicaid.
So, where would expenditure cuts come from to accommodate a major tax cut package? Education. If tax cuts create a major hole, it will be hard to avoid cutting K-12. During the Great Recession, legislators struggled to avoid that part of the budget, but K-12 education proved to be just too big a share of state spending to avoid cuts.
Grover Norquist’s anti-tax stance does not work for ‘reality world’
If the lieutenant governor does not want to cut funding for schools or raise tuition at our universities, his next realistic option is raising other taxes or dumping services onto local governments.
Generally speaking, most states and local governments are funded by some mix of income taxes, consumption taxes (usually retail sales taxes), property taxes and user fees. All of these taxes have strengths and weaknesses, and overreliance on any one tax can create serious economic distortions.
I have been a consultant or staff to several tax reform commissions and studied the results of many others — there are no easy answers. Alternatively, states can “devolve” services to the local level and force them to pick up the difference — typically leading to property tax increases since that is the major source of funding for local governments. Again, as with the school district example above, this will disproportionately hurt rural areas that don’t have a robust tax base.
Recently, Grover Norquist, the head of Americans for Tax Reform, flew to Georgia to testify before a legislative committee. Grover once boasted that he wanted to shrink the size of government until it was small enough “to drown in a bathtub.” And of course, he famously asks all (Republican) legislators to take a pledge that they will not raise taxes.
During the Great Recession, I got to personally watch Republican leaders grovel before him as they struggled to raise revenues to fund basic public services: K-12 education, higher education, Medicaid, our corrections system, law enforcement, courts, roads and bridges. They would argue with him, “It’s a ‘user fee,’ not a ‘tax’”!
But Grover does not live in reality world with the rest of us who understand that our state’s economic health and well-being are tied to being able to provide key services effectively and efficiently, as well as being a low tax state. We have to have balance.
A tax cut that rips the guts out of funding for K-12 education or doubles our retail sales or property taxes will have a negative economic impact, not a positive one. So the challenge for our lieutenant governor and his big, bold idea: What are you going to cut? Or are you going to raise taxes and user fees? Or both?
Decide and let us know. Because those of us in the pragmatic center know, there is no free lunch.
Carolyn Bourdeaux is a former member of Congress from Georgia’s 7th District. She is also executive director of the Concord Coalition and Concord Action, organizations dedicated to education and advocacy in support of fiscal responsibility. She is a regular contributor to the AJC opinion pages.
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