Georgia state leadership is proposing the first cut to the state income tax rate since 1937.
Gov. Nathan Deal, Lt. Gov. Casey Cagle and House Speaker David Ralston on Tuesday rolled out their proposal to reduce the state’s top tax rate, which is paid by most Georgians, to 5.75 from 6 percent. House Bill 918 also leaves open the chance for an additional cut to 5.5 percent in 2020.
The proposed cuts would head off an estimated $3.6 billion income tax windfall for state government generated by changes to federal tax law.
Increases of the standard deduction at the federal level, along with other changes to deductions and exemptions, would create the huge tax haul for the state and a tax increase for state residents — unless the Georgia General Assembly approves the tax cut dropped on Tuesday.
“The standard deduction was last increased in 1981,” Deal said in a Tuesday press conference. “The individual rate was set at 6 percent in 1937 and has not changed since, while the corporate rate has also remained at 6 percent since 1969.”
Deal’s office estimated that based on existing law, the state would collect $3.6 billion in new revenue from individuals paying the state income tax over the next five years.
“The new $12,000/$24,000 increased federal standard deduction for single/marrieds coupled with the new federal limitations on deducting state and local taxes is expected to cause many more taxpayers to choose the standard deduction, where in the past they would have itemized,” said Russell Hopkins, a partner and CPA in Gainesville-based BatesCarter. “The bad news is that the Georgia standard deduction for single/marrieds is still $2,300/$3,000, which would mean that, under current law, that will be the only deduction they get. That is where the state tax windfall occurs.”
This tax revenue jump would come after hefty revenue increases for the state in 2017 because of Georgia’s improving economy and the restructuring of taxes funding transportation projects in the state.
“This bill keeps more of taxpayers’ hard-earned money in their pockets by doubling the standard deduction and reducing income tax rates,” Deal said. “It will save taxpayers more than $5 billion over the next five years.”
Along with cutting the top rate, HB 918 also doubles the state’s standard deduction for all Georgians. For married couples, the deduction would increase to $6,000 from $3,000.
“Most importantly, this framework sets the stage for continued reductions — building on the Trump administration’s tax reform to allow Georgians to keep more of what they earn,” Cagle said in the same press conference.
The proposal has critics. The Georgia Budget and Policy Institute, which analyzes state policy and budgets to determine their effects on low-income residents and poverty, has come out against the bill. GBPI Executive Director Taifa S. Butler said it was a “rushed tax plan” and “worrisome because slashing the income tax rate holds the potential for unintended consequences.”
“Without more clarity, a rate cut is fiscally reckless and jeopardizes the state’s ability to meet the demands of a growing population,” Butler said in a Tuesday statement. “Georgia continues to fall short of the state’s obligations to fully fund its public schools and broker a solution to extend affordable health care to hundreds of thousands of people.”
Tax changes at the federal level have also lowered the cap on the state and local tax deductions for taxpayers. By lowering the state’s income tax rate, Deal and other state leaders would help dull the pain of a higher tax bill caused by losing out on that deduction.
“Many taxpayers pay much more than that. Since the state of Georgia law is coupled with the federal law, every dollar in lost federal deductions is a dollar lost in state deductions,” Hopkins said. “Someone losing $20,000 in deductions, which won’t be uncommon, will pay and additional $1,200 in state taxes.”
The bill also eliminates the sales tax on jet fuel, which Deal said would boost the number of long-haul direct flights leaving from Georgia.