Georgia House Republicans unveiled a $1 billion tax cut package on Tuesday, the same day their GOP colleagues approved the governor’s proposed $1.6 billion plan to return some of the revenue government surpluses to taxpayers.
Speaker David Ralston and the bill’s sponsor, State Rep. Shaw Blackmon, who chairs the Ways and Means Committee, announced the plan at a news conference hours after backing the repayment plan single from Governor Brian Kemp. The proposal faces a tight deadline to meet before a key deadline in two weeks.
Ralston signed up in January seek “responsible tax relief” even as some statewide GOP candidates campaign on the promise to completely eliminate the state income tax, which funds nearly half of the state budget. He said on Tuesday that such proposals “would put a catastrophic hole in the budget.”
“I know it doesn’t hold up as well on a bumper sticker, but I think that’s the responsible way to do it,” Ralston said of the House GOP plan.
Blackmon’s invoice would, however, remove the progressive six-step tax rate the state currently uses — which now caps at 5.75% — and replace it with a reduced, flattened rate of 5.25% on all income.
The Bonaire Republican also said his proposal wraps many of the state’s existing exemptions into a higher standard exemption of $12,000 for singles and $24,000 for married couples. The higher exemption, he said, is intended to offset any tax increases on low-income Georgians caused by the proposed flat tax.
“We believe this tax cut will make us more competitive for earners at all income levels,” Blackmon said. “This plan lowers the rate and significantly increases the flat-rate exemption. It’s simple, it’s fair and it allows Georgians to keep more of their money.
State revenues jumped in Georgia after an initial dip early in the pandemic when the economy suddenly ground to a halt, top lawmakers said pass budget cuts last summer.
Collections increased nearly 18% for the year to last month. Last year, the state found itself with billions in excess revenue when the fiscal year ended on June 30.
Governor Brian Kemp reacted to these rising revenues with growing budgetsincluding an $30.2 billion spending plan for next year which is about $3 billion higher than this year’s budget as originally adopted. The governor has included costly salary increases for teachers and state employees in the budget.
If passed, the proposed tax cuts announced on Tuesday will not take effect until 2024.
Ralston billed the proposal as the largest income tax cut in Georgia’s history. Lawmakers cut the maximum rate from 6% to 5.75% in 2018 with plans to cut it again in 2020 before the pandemic upends the economy.
Lawmakers came back last year and increased the standard deduction, resulting in a small tax break.
“We believe as a fundamental principle that government should live within its means, that there is no government money, but belongs to Georgian taxpayers,” Ralston said.
Revenues have shown no signs of slowing so far, although the state economist made predictions in January that growth may soon slow to a “more normal pace”.
Kyle Wingfield, president and CEO of the Georgia Public Policy Foundation, a conservative, called the proposal a “good next step” toward reducing the income tax rate enough to be regionally competitive. He also called the state’s current six-slice system “unnecessarily complicated.”
“We’re in a tough neighborhood when it comes to tax rates,” Wingfield said Tuesday. “I think from a competitiveness point of view there is definitely a need to do something here.”
Georgia is sandwiched between two states – Tennessee and Florida – with no income tax. North Carolina recently approved a phased reduction in its rate, and South Carolina lawmakers are currently debating proposals for tax cuts.
“We believe they are in a position to take another step forward, to go further than they originally planned in 2018 and hopefully set the stage for further cuts. It makes sense to many ways to take a series of small bites rather than one huge bite at a time,” Wingfield said.
But critics are already urging lawmakers to reconsider the proposed shift to a flat tax. Danny Kanso, senior policy analyst at the Georgia Budget and Policy Institute, called the flat tax “dangerous” and warned it could dampen the potential benefits of the rest of the proposal.
“Georgia’s recent tax revenue volatility that only a few months ago forced billions of dollars in budget cuts demonstrates the need to preserve our state’s ability to fund health care and public education without overtax low- and middle-income families, who are disproportionately people of color,” Kanso says.
“Lawmakers can improve the proposal and rebalance the tax code by rejecting the flat tax, eliminating and capping unnecessary business subsidies offered through the tax code, such as the costly movie tax credit, pursuing common-sense revenue increases — like lifting the tobacco tax at the national average — and adding a refundable earned income tax credit.
$1.6 billion tax refund plan passed
The tax cut plan will also likely meet with backlash from those who would like to see the state spend more money on services.
Rep. Josh McLaurin, a Democrat from Sandy Springs, questioned why the state is returning $1.6 billion in revenue to taxpayers as state agencies battle high employee turnover rates and other challenges.
“Would you agree with me that our government does not currently have the money it needs to operate at a basic level and that this type of measure gives money that the government really needs to work ?” said McLaurin, who voted against the bill.
This proposal, sponsored by the governor’s leader, Rep. John Bonner, a Republican from Fayetteville, would return $250 for single filers, $375 for head of household and $500 for married couples filing jointly.
“I would say the government would spend every dollar it takes out of the hands of the taxpayer,” Bonner said in response. “I think it’s important that when opportunities arise for us to return that money, we do so.”
The bill passed the House with a vote of 148 to 18 on Tuesday and is going to the Senate for consideration. This week, the House also unanimously approved a bill that would exempt up to $35,000 per year of military retirement income from state income tax.