Changes to the state tax code are possible when lawmakers convene in January for the 2016 session of the Georgia General Assembly, but just who will benefit remains unclear.
A new report from the Georgia Budget & Policy Institute, “A Bottom-Up Tax Cut to Build Georgia’s Middle Class,” advocates a state earned-income tax credit to support working-class families.
“Too many Georgians today work hard and play by the rules but fail to get ahead. Incomes are down, wages are flat and expenses are rising for low- and moderate-income families statewide,” according to the GBPI report. “For them, state and local taxes are more than just the nuisance payment they represent to higher earners.”
While the wealthy pay a higher percentage in state income taxes, the middle class and poor may be more affected by sales and consumption taxes, which can impact their ability to put food on the table, pay bills and save.
Twenty-six states and the District of Columbia offer their own EITCs, which are modeled on a similar federal credit.
Advocates of a state-level EITC believe it will help families afford basic necessities and begin making investments in homes and other assets that can pave the way to the middle class.
The GBPI reports that about 1.1 million Georgia households, or 28 percent of all state income tax filers, received the federal EITC in 2013.
Families making between $10,000 to $23,000 annually receive the largest EITC value, and the average federal EITC for Georgia recipients was $2,700 in 2013, the GBPI reports.
A state EITC would likely impact many workers and families in Gainesville, where about 28 percent of residents live below the poverty level, compared with a statewide average of just 17.4 percent.
The median household income is slightly above $40,000 in Gainesville, while the statewide average is above $49,600.
So how might an EITC fit into the state legislature’s tax reform plans?
“To be cynical, as long as Republicans can keep reducing the taxes of corporations and the upper income taxpayers and say they are giving an increase to low wage workers, I believe they would be in favor of a Georgia EITC,” said Sheila Nicholas, chairwoman of the Hall County Democratic Party. “The real question: is this a sufficient argument to make to Republicans?”
In 2012, Gov. Nathan Deal signed a bill that reduced the marriage tax penalty, eliminated the “birthday tax” on motor vehicles and imposed sales taxes on Internet retailers.
But broader plans to begin lowering income tax rates while offsetting lost revenue with increases in sales and consumption taxes did not take shape at that time.
Republican lawmakers, however, have not given up on this idea.
For example, Rep. John Carson, R-Marietta, introduced the More Take Home Pay Act this year, which seeks to lower the state’s income tax rate and replacing lost revenue with increases in sales taxes.
The proposal aims to lower the state sales tax to 4 percent from 6 percent over three years.
The bill would also phase in a statewide grocery sales tax, plus additional taxes on cable and satellite communications, and on cigarettes.
“It’s always been said that if we do anything with the sales tax it’s going to affect the poverty-level people,” said state Rep. Carl Rogers, R-Gainesville.
But political conservatives like Rogers argue that sales and consumption taxes are more equitable, help spur spending and job growth, and give people choices in how much tax they are willing to pay.
“It has an impact on all of us,” Rogers said.
Because a state EITC would give individuals more disposable income, the GBPI argues that businesses will benefit as well.
“States and regions are laboratories for economic development and democracy in this country,” said Tim Evans, vice president of economic development at the Greater Hall Chamber of Commerce.
And the EITC could be a substitute for a minimum wage increase, which has gained little traction in Georgia.
“It’s unfair that people willing and wanting to work in restaurants, retail and service occupations are not able to do so because a government price control on the minimum wage has forced small business owners to reduce their job ranks,” Evans said. “Whenever we see price controls implemented, unintended shortages follow, and in this case its jobs.”