Georgia’s Official Seal includes banners of Wisdom, Justice, and Moderation draped onto three pillars portraying the branches of government. The Seal is a prominent backdrop for legislators exercising their delegated authority to tax, a grave power only second to that of punishment and incarceration. If taxes are a necessary evil, then moderation could be a saving grace.
Beginning in 2024 all Georgians will benefit from individual tax reform enacted over the most recent two legislative sessions. It’s been a long time coming. The changes are more than subtleties to modernize the state’s largest source of revenues - they reconstitute parts of the Georgia Tax Code that have been in a time warp since 1937. The existing six progressive tax brackets are replaced with a single tax rate (5.49 percent) on all taxable income. The outdated standard deduction is eliminated and substituted by a larger personal exemption deduction that more closely aligns with its Federal counterpart ($12,000 for singles, $24,000 for joint filers). An archaic marriage penalty is canceled by the new personal exemption deduction.
The changes will have positive lasting effects. The larger personal exemption deduction will exempt a larger portion of income from tax. The single tax rate will simplify tax calculations and withholdings while leveling the playing field on how every dollar of taxable income is taxed. Taxpayers who itemize on their federal return may itemize on their state return or take the new personal exemption deduction, but not both. Georgia joins 13 other states with a single tax bracket for all individual income. Our rate is about average of all taxing states nationally, but it is the second-highest among our contiguous neighbors.
Credit: contributed
Credit: contributed
The hits keep coming, we think.
Beginning in 2025 the single tax rate is scheduled to reduce 0.1 percent annually (bottoming at 4.99 percent) over not less than 5 years. However, the post-2024 reductions include baked-in contingencies and a pause should there be a shortfall in state revenue targets for collections, growth and reserves. The Governor’s Office of Planning and Budget will gather the numbers through June 30 and report them no later than December 1. Based upon evolving but conservative estimates, current year collections and growth continue as better than expected.
Should this trend carry on five more years, then the pause button will never be pushed. This contingency is nonetheless the result of moderation and compromise and by definition is something that neither tax aficionados nor average Joes should like. A “wait and see” approach can erode confidence and certainty in our system.
State leadership has shown the stomach to continue modernizing our tax code, including a current review of all state tax deductions, exemptions and credits. The reviewing committee’s conclusions are to be reported December 1 and should initiate legislation to repeal, reduce or sunset a boatload of benefits that do not provide growth in jobs, efficiency, stability, transparency, fairness and proper development. Their recommendations should follow the same guiding principles used in new legislation and employ more than a mere cost-benefit analysis to determine their fate.
We shouldn’t expect the governor’s office and the legislature to wander far from the banner of moderation. Even the time-warping changes soon to take effect with our individual income tax structure include a speed governor (pun intended) added by amendments from both chambers and by a rare conference committee tie-breaker.
Recently we’ve witnessed state budget-cutting followed by budget-busting collections followed then by quick tax rebates and tax reductions. Let’s encourage our representatives to be faithfully moderate and reverse engineer our cobbled tax code, build in permanent rate reductions and end evergreen subsidies that don’t work or are not needed.
Bradford C. Dickson is a CPA who served on the 2010 Special Council on Tax Reform and Fairness for Georgians. He is a retired practitioner from Windham Brannon in Atlanta.
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