The rate is set to drop to 5.49% on Jan. 1, but Kemp, surrounded by key lawmakers, announced that he will back legislation to knock it down to 5.39% next year. If approved, the change would save Georgians about $300 million annually in taxes, officials said.
“This is what happens when you budget conservatively,” the governor said. “This is what happens when you think long-term, rather than make knee-jerk fiscal decisions without considering the impact it will have on the state.
“All of us here today believe that is your money, not the government’s. One of our most solemn responsibilities as leaders of this state is to be good stewards of what the people of Georgia entrust us with.”
Kemp contrasted Georgia’s fiscal management to that of the federal government, which runs massive deficits every year. By law, Georgia cannot run a deficit.
“We’re keeping government streamlined and giving taxpayers more of their hard-earned money back,” he said.
Individual income tax collections make up about half of the money the state uses to pay for schools, public health care programs, policing, prisons and dozens of other things.
The Atlanta Journal-Constitution reported in October that the state ended fiscal 2023 on June 30 with $16 billion in “rainy day” and undesignated reserves, nearly enough to run state government for six months if it had no other income.
During the past two years, Kemp and lawmakers have approved income tax rebates, giving Georgians back $250 to $500. This year they also approved a property tax break. And Georgians have saved about $2 billion from two suspensions of the state gas tax, the first of which began in March 2022.
After three consecutive years of massive tax surpluses, revenue increases have slowed during much of 2023. Still, it was long assumed Kemp would seek to cut taxes again with $16 billion sitting in state reserves.
As is most always the case when tax rates are lowered, the biggest beneficiaries will be top earners in Georgia. But supporters say pretty much everyone is seeing something out of the tax cut.
The measure delays the phase-in of lowered rates any year the state doesn’t have enough money in reserves to pay for it, any year state tax collections don’t grow at least 3% or if collections are lower than any of the five previous years.
Once fully implemented, House Ways and Means Chairman Shaw Blackmon, R-Bonaire, said last year, the changes would save a family of four with an income of $75,000 about $650 a year.
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 a year.
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 large part because of waves of federal COVID-19 relief money that Congress approved almost as soon as the nation’s economy shut down to fight the pandemic.
Because of that, the state ended fiscal 2021 with a $3.7 billion surplus. The next year the surplus hit about $6.6 billion, and in fiscal 2023, it topped $5.3 billion.
So the state’s savings accounts have gone from being nearly empty during the Great Recession to $16 billion, with most of the gains happening over the past three years.
State House Speaker Jon Burns, R-Newington, said Georgians have among the lowest rates of state and local taxation in the nation.
“We believe in the principle that tax dollars belong to the people who earn them in the first place,” Burns said.
Lt. Gov. Burt Jones, the state Senate’s president, repeated his support for completely eliminating state income taxes. Neither Florida nor Tennessee, two neighboring states, charge an individual state income tax.
However, so much of the revenue the state takes in to fund schools, health care and other services comes from income taxes that it would be difficult for Georgia to eliminate the levy.
“I’m all for cutting taxes,” Kemp said. “We have been putting money back into our citizens’ pockets. If there is a plan to get down to zero, we just need to see the plan and we can get to work on that.”