If the House bill passes, it wouldn’t take effect until 2024, so budget writers would have time next year to figure out how to make up for the loss of tax revenue.
Under the House measure:
- The currently progressive income tax rate would go from a maximum of 5.75% to a flat 5.25%.
- Deductions, other than those for charitable contributions, would be eliminated. That would include the current $5,400 standard deduction for single taxpayers and $7,100 for married couples filing jointly.
- The standard exemption would go from $2,700 for single filers to $12,000 and from $7,400 to $24,000 for married couples filing jointly. Dependent exemptions would remain at $3,000.
- A family of four in Georgia would pay no income taxes on their first $30,000 of income. Blackmon said that same family, if they have $50,000 in earnings, would save more than $400 a year.
- Current exemptions for retirees would remain. Taxpayers age 65 and older now can exclude up to $65,000 of their nonwork retirement income — pensions, 401(k)s, investment — on their Georgia tax returns.
As with any lowering of tax rates, the biggest beneficiaries would be top income earners. They would pay a smaller percentage on their higher earnings. However, Ralston’s office estimates 95% of Georgians would pay less in taxes under the plan.
House leaders said it would be the biggest income tax cut in state history.
Lawmakers voted in 2018 to reduce the top state income tax rate from 6% to 5.75% in response to federal tax changes that, officials thought, would force many Georgians to pay higher state taxes.
The first cut, in 2018, saved Georgians more than $500 million.
The 2018 legislation set up a second vote, in 2020, to lower the rate again to 5.5%, but then COVID-19 hit, the General Assembly session was suspended and the state faced a brief recession.
The state’s economy rebounded nicely, in part because of waves of federal COVID-19 relief money that was approved by Congress almost as soon as the nation’s economy shut down to fight the pandemic.
The state ended fiscal 2021 with a $3.7 billion surplus, and Gov. Brian Kemp, who is facing a tough reelection battle this year, has proposed refunding $1.6 billion of that surplus to taxpayers. The House passed a bill Tuesday calling for the refund. It is expected to overwhelmingly pass the Senate as well.
Tax collections are running 17.9% ahead of last year for the first seven months of fiscal 2022, and Kemp and lawmakers have backed a massive spending increase this year, including pay raises for 300,000 teachers, school, university and state employees.
In typical years of economic growth, the state sees an increase in tax revenue of about $800 million to $1 billion. So hypothetically, the tax cut House leaders are proposing would eat up most if not all the revenue growth used to fund school enrollment and health care expenditure increases in the annual midyear budget.
But House Appropriations Chairman Terry England, R-Auburn, said the revenue increase has been picking up in recent years “in that you are seeing more growth than what the need is.”
Danny Kanso, senior policy analyst at the left-leaning Georgia Budget and Policy Institute, was more skeptical of the proposal, noting that less than two years ago the General Assembly had to cut spending 10% because of slow collections.
“The recent volatility in Georgia’s revenue collections that only months ago forced billions in budget cuts demonstrates the necessity of preserving our state’s ability to fund health care and public education, without overtaxing low- and middle-income families, who are disproportionately people of color,” Kanso said.
What the tax plan would do:
- The currently progressive income tax rate would go from a maximum of 5.75% to a flat 5.25%
- Deductions, other than those for charitable contributions, would be eliminated, including the standard deduction
- The standard exemption would go way up
- A family of four would pay no income taxes on their first $30,000 of income.
Source: House Speaker David Ralston’s office