Shaky state finances, looming income tax cut take stage at Capitol
Georgia lawmakers will soon get an earful about the economic outlook for the state as the governor targets spending cuts, but it remains to be seen whether the uncertainty surrounding the state’s revenues will put a damper on plans to pass a costly tax break that is teed up for next session.
Legislators baked a second cut to the state’s largest revenue source – the income tax – into a measure passed back in 2018, when the General Assembly shaved off one-quarter percentage point from the top income tax rate and brought it down to 5.75%.
That much-celebrated, election-year tax cut was in response to federal tax law changes that would have otherwise plumped up the state’s coffers with an extra $1.1 billion courtesy of Georgia’s taxpayers.
But that was also nearly two years ago, when monthly revenue reports regularly touted healthy increases in state revenue collections. Last month’s total revenues were down 2.8 percent. And two months into the new fiscal year, revenues are up just 0.2%.
That has had a chilling effect on some lawmakers, particularly the budget-writing types. State Sen. Jack Hill, a Reidsville Republican who chairs his chamber’s appropriations committee, was left pondering what could be the cause of the sluggish revenues.
“Whether it is the Income Tax Cut passed last year that started in January or some other factor adversely affecting Georgia’s revenue growth, there is little doubt at this point that Georgia has something amiss in its revenue collections,” Hill said wrote in a recent newsletter.
Hill’s counterpart in the House, state Rep. Terry England, said he still thinks last year’s cut was a good move, but he has not yet decided whether he believes another cut should follow. He said he wants more information first.
“If we can do it, I think we want to do it to help save taxpayers money, but at the same time, we’ve just got to look at it and make sure it’s not something that winds up hurting those folks that we try to look after, whether it’s students in schools or paving roads or whatever,” England said in recent interview. “But if we can do it responsibly, then I think it stays on the table for a good discussion.”
England and Hill will lead two days of budget hearings at the Capitol, which kick off today. The agenda’s headliners are the new state economist, Gov. Brian Kemp’s budget director and other economists. Kemp’s mandated reductions – 4% this year and 6% next year – have been floated as both a way to prepare for a possible economic slowdown and to make room for other priorities. Kemp also campaigned on spending cuts.
‘Continue on the path’
Other key lawmakers, including state Rep. Brett Harrell, who chairs the House Ways and Means Committee, have already said they believe lawmakers should press on and cut the top rate to 5.5% as planned – while also looking for ways to raise revenues.
Specifically, the Snellville Republican mentioned a bill that targets some third-party online vendors, such as Walmart.com, who are currently not charging a sales tax. State budget analysists say the change could bring in nearly $100 million a year, with an outside group estimating that as much as $750 million in revenue could be collected.
“I think we should continue on the path that we’re on now with a very systematic, moderate stepdown in taxation very gradually as we’ve begun doing a year or ago,” Harrell said in an interview.
“We are looking at revenue enhancements at the same time, revenue enhancements that are not new taxes but just collecting what’s already due and at the same time moderately, gradually reducing the tax burden on Georgians,” he said.
He said he’s “just not overly panicked by a single month of year-over-year decline.” Likewise, he said he’s not overly impressed by a single month gain, like when state revenues jumped 24% in April.
Likewise, House Speaker David Ralston still backs the additional income tax rate reduction, according to his spokesman.
“Speaker Ralston believes that the tax cut passed in 2018 requiring phased-in cuts constitutes a commitment to hard-working Georgians,” Kaleb McMichen said in an email Wednesday. “As such, it should be breached only in dire economic conditions. The House will continue to monitor the economy and assess all relevant data as it does each year.”
An additional tax break comes with a hefty price tag, though.
The cost to hack away another one-quarter percentage point, bringing the top rate down to 5.5%, would cost the state about $550 million, according to an analysis from the Georgia Budget and Policy Institute.
The budget cuts, meanwhile, will save about $220 million this year and another $310 next year.
The initial proposed reductions offered by agency heads touched everything from the state crime lab to child welfare positions to agricultural research. Kemp has since pushed back on initial agency proposals that sought to find the savings through broad cuts to personnel cuts and reductions to core services for taxpayers.
But the state’s shaky revenues have raised questions about whether the state can afford to forgo $550 million in revenue as agency heads try to save hundreds of millions of dollars.
House Minority Leader Bob Trammell called it “fuzzy math.”
“It makes zero sense to talk about cramming down a harmful tax cut that provides little actual relief to most Georgians while a lot of Georgians will be hurt by the proposed budget cuts,” the Luthersville Democrat said Wednesday. “Uncertainty plus uncertainty equals just more uncertainty. And that’s never good.”
Danny Kanso, who is a policy analyst with GBPI, said another cut would only give some middle-class Georgia families an average tax break of about $42.
“This income tax cut is the least efficient and the costliest way to cut taxes,” said Kanso, who was a policy advisor to former Republican Lt. Gov. Casey Cagle.
“For your average Georgia family, especially if they’re in rural Georgia, they’re going to feel the brunt of these really deep spending cuts a lot more than they would feel any benefits from a quarter point cut in the top income tax rate,” Kanso said.
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