A year ago, Georgia lawmakers approved a $1 billion reduction in the personal income tax and set the stage for cutting at least $1 billion more. Given the state’s large budget surpluses, you may wonder what legislators are doing about taxes this year.
There’s progress, albeit less than last year. Rather than structural reforms, lawmakers agreed to two tax rebates that, while sizable, won’t alter incentives to work, save and invest — the building blocks of an economy.
Still, things are lining up for more big reforms in 2024.
Recall that last year’s reform collapsed Georgia’s unwieldy six brackets into one flat rate, and set that rate on a course to fall from 5.75% to 5.49%, and eventually to 4.99%. The bill also expanded income exemptions for taxpayers; once they’re fully implemented, a family of four would pay no state income tax on their first $30,000 of earnings.
While ambitious, the bill was cautious in its timing. The 4.99% rate could not be achieved before 2029, and the full exemption for married couples would not hit until 2030. What’s more, each annual rate cut of 0.1 percentage points would take place only if revenues met three criteria. One of those criteria is that the state’s net revenue collections be higher than each of the previous five fiscal years. That detail is where the first problem — and the first sign of new progress — shows up.
First, a little background: 2022 featured an unprecedented surge of revenue. The state took in almost $36.6 billion, an increase of more than $6 billion over 2021. Friday, the state reported revenues for 2023 through February, the eighth month of the fiscal year. So far, revenues are surpassing last year’s scorching pace by 5.9%, or about $1.17 billion.
Trouble is, no one expects that to last. Taxes paid on capital gains alone are expected to sag by some $3 billion, due to last year’s bear market on Wall Street. Corporate income tax revenues are also projected to fall. While there’s upside for some categories — such as motor fuel taxes, suspended for the first several months of this budget year but now back in effect — the net result is likely to be lower than 2022. Yet, revenues in 2023 could be lower than in 2022 and still far surpass any prior year. And revenues in 2024 could grow healthily but fall short of 2022’s peak. All of which means a five-year look back at revenues could delay further rate cuts unnecessarily.
So, the first bit of progress is that the House of Representatives approved House Bill 454, by Rep. Shaw Blackmon, R-Bonaire, without any dissenting votes. The bill would reduce the look back to only three years. That would allow rates to start falling again as early as 2026, a mere one-year delay. That’s not all. The bill also would accelerate the higher personal exemptions for married couples, implementing the entire increase in 2024 rather than 2030. That could save many married couples $300 next year alone. There are some other technical provisions in the bill, and all told it should yield a small tax cut. Considered alongside other legislation that nudges revenues higher, it’s probably a wash for taxpayers in the aggregate.
But there’s more opportunity ahead. Earlier this month Gov. Brian Kemp, Lt. Gov. Burt Jones and Speaker Jon Burns announced a review of state tax credits later this year. Discontinued credits could yield revenue that lawmakers use to further reduce the income tax rate.
There has been much talk about getting to a zero income tax to match neighboring Florida and Tennessee, or just lowering the rate to remain competitive with the more than dozen states having lowered their income tax rates in just the past two years. But it’ll remain mere talk unless lawmakers are willing to broaden the base. The review of tax credits offers hope of doing just that.
All in all, next year could be another banner year for tax reform in Georgia.