March 31, 2017
Senior Policy Analyst
Georgia lawmakers ended their legislative session Thursday by enacting a few tax credits and smartly choosing not to pass a major income tax cut that had been working its way through the legislature. Policymakers in other states should take note and follow Georgia’s lead by rejecting costly and inequitable flat-tax and other high-income tax cut proposals.
The bill, HB 329, started out as a mixed bag. It included positive aspects such as a new nonrefundable state Earned Income Tax Credit (EITC), elimination of Georgia’s nonsensical state income tax deduction for state income taxes paid, and indexing of standard deductions and exemptions for inflation to ensure that their value to Georgians does not erode over time. But at the heart of the bill was a dramatic and damaging change in the structure of the state’s income tax, from a set of graduated rates to a 5.4 percent flat rate. Even with the EITC and other helpful provisions, this initial proposal would have raised taxes on many low- and middle-income families, particularly those without children, while handing out large tax cuts to wealthy Georgians.
Later, in an attempt to hold lower-income and childless Georgians harmless, lawmakers replaced the flat tax component of the bill with a version that would have cut the top income tax rate while keeping the basic progressive structure in place and slightly increasing the personal exemption. Lawmakers also added a provision to index the tax brackets for inflation and combined the bill with a separate effort to collect taxes owed on online purchases. With these changes, the package became less inequitable but also much more costly, projected to reduce revenues by $292 million in FY 2018-19 and $526 million by FY 2021-22.
Ultimately, time ran out on the 2017 session with HB 329 left on the drawing board. Georgia’s legislative calendar is based on a two-year cycle, so the bill could be revived next year. If lawmakers resurrect the bill next year, they should remove costly income tax cuts for Georgia’s wealthiest families, keep the provision that strikes the deduction for state income taxes paid, and bring back the EITC that was abandoned along the way.