Lawmakers are undoing some of the governor’s plan to trim spending in next year’s state budget – especially where he tried to make room for the rest of a promised $5,000 teacher pay raise – and now competing tax and spending priorities grab the spotlight at the Gold Dome.
House lawmakers said Monday they favor a more gradual approach and have countered by cutting Kemp’s $2,000 pay hike in half while adding a 2% pay bump for state employees and a little extra for hard-to-fill state jobs like juvenile corrections officers and child welfare workers.
The recommendations also reversed several of the governor’s cuts, such as controversial reductions to yet-to-be-implemented mental health services and to the Georgia Bureau of Investigation’s crime lab. The House is set to vote on the budget Tuesday.
“All of those things tie in, in a lot of ways, to the teachers in the classroom because it’s individuals that they’re having to deal with, but it’s also something that impacts all 10.7 million Georgians as well,” Rep. Terry England, who chairs the House Appropriations Committee, told reporters Monday.
England and other House leaders unveiled their alternative $28.1 billion spending plan for next year the same day House Speaker David Ralston announced sweeping changes to Georgia’s income tax, although those changes would affect future budget years beyond the one that takes effect in July.
A proposed income tax rate cut has loomed over the session, with Ralston saying from the outset that he believed lawmakers should follow through with plans to cut the rate by another one-quarter percentage point. The first cut occurred in 2018 when state officials anticipated a windfall from the federal tax law, and that vote teed up a second possible tax cut.
But instead of taking the state’s top rate to 5.5% as called for in 2018, Ralston Monday endorsed a plan to flatten the state’s graduated six-bracket system into a single 5.375% rate for everyone. That plan would be paired with an income tax credit that is meant to offset the impact on low-income taxpayers. Lawmakers will also back tripling a tax break for people who foster a child, as Kemp has proposed.
“We will keep the promise we made the Georgians in 2018 and more by adopting the largest income tax cut in Georgia history,” Ralston said told a crowd of legislators, lobbyists and journalists gathered for an Atlanta Press Club event.
The state’s corporate income tax would remain at 5.75%.
Rep. Brett Harrell, a Snellville Republican who chairs the House Ways and Means Committee, said collapsing the tax brackets into a single tax rate and eliminating a double deduction for taxpayers who itemize would help pay for the changes.
The total cost to the state treasury would be about $272 million, Harrell said.
It may take some convincing, though, to win over support from the GOP-controlled state Senate, where lawmakers have been less eager to chop the tax rate after unstable state revenue collections in the past year.
The trio of tax measures won high-powered support even as the coronavirus outbreak and chaotic global oil markets sent U.S. financial markets tanking this month. The new tax structure would not take effect until next year.
“That is well beyond our control,” Harrell said, specifically referring to the spread of coronavirus. “And I don’t think we are like turtles and just pull into our shell and avoid the world and continue to do things that are good for Georgia, good for business, good for taxpayers.”
Harrell also noted next year’s budget doesn’t include new revenue from a new policy that requires third-party online vendors, such as Etsy.com, to pay sales taxes owed. He said other potential changes could relieve pressure on future budgets.
A key House committee advanced the income tax proposals Monday afternoon as the clock ticked toward a pressing legislative deadline. A bill must clear at least one chamber by Thursday’s Crossover Day to have the clearest path to becoming law.
The top-ranking Democrat in the House linked the spending reductions lawmakers struggled to make this year to the 2018 income tax cut and said another round is a bad idea.
“In a year where we are grappling with budget cuts that are in no small part due to the 2018 tax cut, it makes no sense to proceed with another ill-considered change to the tax law that benefits high-income tax earners on the backs of present and future cuts that will harm all Georgians,” said House Minority Leader Bob Trammell, a Luthersville Democrat who voted against the proposal Monday.
Danny Kanso, a policy analyst with the Georgia Budget and Policy Institute, said the tax credit proposal would help mitigate some of the tax hit on low- and middle-income families with the move to a flat tax. But he said it’s unlikely to completely offset the increase.
“Amid increasing economic uncertainty and slowing revenue collections, abandoning the structure of Georgia’s largest and most dependable source of revenue in favor of a flat tax would almost exclusively benefit high-income earners at the expense of teachers and low- to middle-income Georgia families across our state,” Kanso said in a statement Monday.
Ralston said lawmakers will also pursue a pair of bills that make “tweaks” to the budget process. The north Georgia lawmaker had tried to jumpstart his chamber’s involvement in the budget process earlier than usual after Kemp ordered budget cuts, and the governor thwarted those attempts.
One measure, HB 1111, would limit the governor’s ability to withhold appropriated funds and requires increased transparency. Another bill, HB 1112, would force state agencies to simultaneously provide information to legislative and the governor’s budget writers, and it would give lawmakers some say on each year’s revenue estimate – something that is now the governor’s sole purview.
“An independent house makes for a more responsive state government,” Ralston said. “It does not mean that the House and the governor are adversaries. Quite the contrary. It is designed to produce the best outcomes for our state. It is built on mutual respect and an appreciation of the role that each have in our system.”