Georgia Income Tax Cut Still On The Table

This week’s Courier Herald column:

While it may seem paradoxical, the further we move into a session of the Georgia General Assembly, the less certain the outcome of major initiatives.  The beginning of a meeting of the legislature is marked by definitive statements of priorities in media avails with key leaders, speeches at the annual Eggs and Issues breakfast, and a State of the State address.

Consider these analogous to a battle plan.  The week of budget hearings is often a first shot, sometimes leaving the most certain of prognostications of what the legislature will produce between now and Sine Die filled with holes.

The Governor’s signature priority is a $2,000 pay raise for educators, completing his campaign pledge for a $5,000 across the board increase in teacher’s pay scales.  A $3,000 pay raise was included in last year’s budget.

A good number of legislative leaders have indicated their priority is to follow through on their promise to cut Georgia’s income tax rate.  The top rate was cut from 6% to 5.75% during the 2018 legislative session.  That legislation envisioned a further cut to 5.5% next year, but also called for an additional vote to finalize the additional cut. 

Both sets of promises were made two years ago.  In addition to each appearing to be in conflict with the other – one an increase in dedicated annual spending with the other cutting annual revenue to state coffers – a few additional things have happened to complicate the picture.

Part of the premise of Georgia’s income tax cut was that the state would be seeing a windfall from federal tax cuts passed by a then Republican Congress and signed into law by President Trump.  With federal deductions reduced, Georgia stood to collect extra tax revenue.  Those projections may have been a bit exaggerated.

In addition, we’ve had a major hurricane disrupt a large swath of Southwest Georgia’s agriculture economy, and a couple of near misses disrupt tourism and some other revenue generating businesses along Georgia’s coast.  Economists are still trying to determine how much lost revenue is a temporary shock versus a longer term structural loss.

The week of budget hearings didn’t clear up most of the legislators’ open questions.  That’s a charitable way to characterize their assessments after a week of testimony on both income assumptions and spending plans, which include deep cuts to many non-education functions of state government.

The House Appropriations Chairman, Terry England, penned an Op-Ed last week reflecting on the work ahead to match revenues to spending while funding priorities and scrutinizing proposed cuts.  A short summary is contained in his honest observation, “Can we afford a second teacher pay raise? Can we afford a second income tax rate cut the legislature has hoped to implement during this session? I simply don’t know.”  He also noted that “everything is on the table”.

A couple of days after his editorial appeared, a fiscal note arrived on House Bill 432.  The bill would cut Georgia’s tax rate from 5.75% to 5.5%.  That would leave Georgia’s income tax higher than North Carolina (5.25%) and Alabama (5%), but lower than South Carolina (7%) and Virginia (5.75%).  Tennessee has no personal income tax except for dividend and interest income, but does have a corporate income tax of 6.5%.  Florida has no personal income tax, a 5.5% corporate rate, but you’re also going to want a Peach Pass or Sun Pass if you plan on driving anywhere south of the Panhandle.

Because HB 432 eliminates some lower tax brackets in favor of a flat income tax rate, and adds in other reforms, the “cost” to the state in lost revenue isn’t the full effect of a quarter percent income tax cut.  Even after adding back in a credit for low income Georgians, supporters of the bill are touting the cost – $23 Million for the first year, $41 Million for the following year – as quite manageable for a $28+ Billion-dollar budget.

House Ways and Means Chairman Brett Harrell took to twitter to defend the tax cut plan.  Understanding the major spending priority of teacher raises, he noted “it’s not an either/or question.”

So what’s going to happen?  The capitol’s Magic 8 ball is broken.  Budget writers are trying to maintain essential services like law enforcement, food inspections, and mental health assistance while addressing Georgia’s abysmal maternal mortality rate.  They also want to meet the Governor’s request of raises for teachers, and fulfill their own promise of lower taxes. 

The first casualty of this math is the prediction of a short legislative session.  The budget must be balanced.  That’s a battle that is probably going to take some extra time this year.