The Georgia House on Wednesday backed a proposal chamber leaders introduced only last week to lower the state’s income tax rate and raise the standard exemption, estimating the moves would save taxpayers about $1 billion a year.
House Bill 1437, pushed by House Ways and Means Chairman Shaw Blackmon, a Republican from Bonaire, passed the chamber 115-52 after zipping through his committee with no opposition. It now heads to the Senate for its consideration.
The Republican leadership was expected to seek a tax cut this year with all 236 General Assembly seats up for election.
Blackmon said the proposal “is simple and fair and allows Georgians to keep a larger portion of their hard-earned dollars.”
But Rep. Jasmine Clark, D-Lilburn, said many Georgians would see only the equivalent of $6 a month. Some middle-income Georgians would pay higher taxes as the progressive income tax brackets — the rates rise based on income — would be replaced with the same single rate for all.
“House Bill 1437 is not a tax cut for all,” she said. “I am asking you to vote ‘no’ on raising taxes on over 500,000 Georgians.”
Rep. Matthew Wilson, D-Atlanta, said the proposal was designed to win votes this election year.
“This bill has been rushed through because it looks good on a (campaign) mailer,” he said.
If the measure wins final passage, 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 measure:
- The current graduated income tax rate system 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 its first $30,000 of income. Blackmon said that same family, if it had $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, investments — on their Georgia tax returns.
As is mostly the case when lowering tax rates, the biggest beneficiaries would be top income earners. They would pay a smaller percentage on their higher earnings. However, officials estimated 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 last week calling for the refund, and the Senate Finance Committee did as well Monday.
Tax collections are running 16% ahead of last year for the first eight months of fiscal 2022, and Kemp and lawmakers have backed a massive spending increase this year, including pay raises for 300,000 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, a senior policy analyst with the left-leaning Georgia Budget and Policy Institute, said moving the tax system to a flat, lower rate would “result in disproportionately large tax cuts for the wealthiest while hundreds of thousands of families would see tax increases or few benefits.”
Kanso said 62% of the $1 billion-a-year tax cut, or $620 million, would go to the top 20% of earners — those making over $109,000 per year. About 18% would go to those making $575,0000 a year. He said 10% of taxpayers would see an increase.
“Furthermore, with a $1 billion expected fiscal impact that would slash state income tax revenue collections, it is likely that future tax increases or spending cuts necessary to cover the revenue lost to the state would most affect low- and middle-income Georgians,” he said.
But Kyle Wingfield, president and CEO of the right-leaning Georgia Public Policy Foundation, said an independent analysis done for the group said moving to a flat tax and cutting rates would create jobs in the state by promoting economic activity and investment. The analysis said by year five of the tax cut the measure would be responsible for roughly 21,000 more jobs.
“We believe it’s important for Georgia to provide relief to working families and remain competitive with our neighboring states,” Wingfield said. “Reducing the personal income tax rate, while also reducing the amount of income that is taxed, helps achieve both.”
The Senate Finance Committee held a hearing Wednesday on a proposal to eliminate state income taxes completely, but it didn’t take a vote on the measure.
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