Legislation that would dramatically alter the state’s personal income tax rate narrowly cleared the House after quickly gaining momentum this week.
At the heart of the proposal is a plan to shift the state away from its current graduated six-bracket system that increases the tax rate as a person’s income grows and replace it with a single, flat rate of 5.375%.
That change alone would likely cost the state $600 million or more, but that budget blow is softened by another change that would end a so-called double deduction for taxpayers who itemize. The overall hit to the state treasury would be about $250 million every year, according to Rep. Brett Harrell, the bill’s sponsor.
For lower income taxpayers who would see their tax burden grow under a 5.375% flat tax, a new tax credit is designed to offset the increase. The proposal also includes a plan to triple an existing tax credit for Georgians who adopt.
But the proposal ran into stiff opposition that fell mostly along party lines Tuesday, with Democrats arguing the tax plan would benefit high-income earners and lead to more budget cuts in the future. The bill passed with a 100-to-68 vote.
“This bill, as is, creates a hole in terms of revenue,” said House Minority Leader Bob Trammell, a Luthersville Democrat. “Now, maybe there’s revenue generated from other measures that we’ve passed that will compensate that. Time will tell.
“But I would submit to you that we should go very slowly before we proceed into a change of this nature and we should think about who it benefits and we should think about who bears the brunt of the budget cuts that we will have to do as a result of less revenue,” he said.
The proposal comes with high-powered backing in at least the House and is a reminder that an election is just around the corner. Democrats hope to flip the 16 seats needed to take control of the House this year.
“Why do this tax cut? My reason is simple. Republicans cut taxes,” Speaker David Ralston, a Blue Ridge Republican, said Monday when announcing the plan.
Ralston and Harrell, who also chairs the House Ways and Means Committee, have both referred to the proposed tax break as a promise kept.
Lawmakers cut Georgia’s then-6% top rate cut by one-quarter in 2018 – at a cost of about $500 million to the state’s coffers – in anticipation of a windfall from the federal tax law. When they did that, they also set the table for a second cut this year.
Critics, though, have cautioned against following through with the additional cut after state revenues slowed, prompting Gov. Brian Kemp to last fall order an immediate 4% budget cut and another 6% cut to this year’s spending plan. Kemp also ordered cuts to make room for a $350 million teacher pay raise, which lawmakers have now cut in half.
Harrell, a Snellville Republican, argued that significant revenue boosters – such as an earlier fast-tracked bill that would require third-party online retailers like Etsy.com and Walmart.com to collect a sales tax – won’t show up in the budget until later. The effects of the proposed flat tax would be delayed, taking effect next January.
“We are not putting any of the core services of government at risk,” Harrell said. “The very people that are generating income and paying taxes to the state to pay for those wonderful programs and benefits that all our citizens benefit from, they also deserve to benefit from our work here today.”