On Monday, the state’s House Ways and Means Committee gave approval to HB 1437, a bill that would lower the state’s income tax rate and combine all brackets into one flat bracket of 5.25 percent. With revenues up significantly so far this year, and a Republican base that generally always like a tax cut, the move comes as no surprise but the scope of the cut is one of the biggest in history.
The measure is receiving support from outside groups as the National Federation for Independent Businesses (NFIB) in Georgia, that sees the cut as a way for small businesses to keep more of their money for investment and hiring.
“Our members are grateful to legislative leaders for seizing this opportunity to relieve some of the financial pressures on Georgia families and small businesses. Most small businesses in the state are organized as pass-through entities, meaning owners pay taxes at the individual rate,” said NFIB Georgia Director Nathan Humphrey.
“Georgia’s small businesses have had a rough couple of years. Combined with the tax rebates included in House Bill 1302 that would give owners money to replace old equipment, expand their offerings, and offer workers higher wages, and that would really help jump-start Georgia’s economy”
At least some of the push on the income tax cut comes from those concerned about Georgia remaining competitive with Florida and Tennessee, among others, that have no income tax. As the state named number one for business for nearly a decade, Georgia has certainly remained competitive so far. Other conservatives point to the impact of inflation on taxes and how the flat rate can solve one of the problems with dollar-based brackets that do not shift despite inflation.
“In a high-inflation era, it also solves a problem present in the current system,” said Janelle Cammenga from the Tax Foundation. “Currently, Georgia’s bracket thresholds are set dollar amounts which are not tied to inflation. This means that, as the actual dollar amount of incomes increases, more of that income falls into higher tax brackets, even if the taxpayer’s purchasing power remains the same. By eliminating bracket thresholds altogether in favor of lower rates, lawmakers would avoid an avenue of future unlegislated tax increases.”
Amid a wave of tax cut proposals from Republicans across the country, Democrats argue the tax cuts may seem good right now but are fiscally problematic long-term.
“Some proponents are offering newer arguments for cutting taxes this year: in particular, that most states have budget surpluses and that income tax cuts are needed to help families deal with rising inflation. But these justifications don’t withstand scrutiny,” said Wesley Tharpe, formerly of the Georgia Budget and Policy Institute and now at the Center on Budget and Policy Priorities.
“States’ current surpluses are largely due to historic amounts of fiscal aid delivered through the American Rescue Plan and other federal COVID-19 relief, and the benefits that relief produced for the economy. But this aid is only available to states through 2024, and federal guidance makes clear that it’s meant to address the pandemic’s health and economic effects, especially on households hardest hit — not to fund state tax cuts. Using one-time surpluses to fund long-term cuts to state tax systems is also unsustainable over time. Even if state balance sheets currently look good, undermining revenues today will lead to steep cuts in schools and other vital services tomorrow.”
