Tax Reform Testimony Regarding the Individual Income Tax

House Ways and Means Tax Reform Subcommittee
Wednesday, February 22, 2017
Testimony of Kelly McCutchen, President, Georgia Public Policy Foundation 

I would like to focus on four positive aspects of HB 329.

  • Pro-Growth: An almost universally held principle of good tax reform is the goal of broadening the tax base and lowering tax rates. This bill does both.
  • Simplification: This bill simplifies the Georgia Tax Code by collapsing six tax brackets into one flat rate.
  • Economic Competitiveness: Lowering Georgia’s top marginal tax rate to 5.4 percent moves Georgia’s rate below that of seven states, including our neighbor North Carolina, which recently reduced its top tax rate of 7.75 percent to a flat rate of 499 percent. (Florida does not have a personal income tax and Tennessee voted last year to phase out the last remnants of its individual income tax.)
  • Fairness: We have consistently supported tax credits as the most efficient way to offset regressive impacts on low-income families.

One suggestion would be to consider a Georgia-specific tax credit, as was contemplated by the Special Council on Tax Reform and Fairness For Georgians, instead of linking to the federal Earned Income Tax Credit (EITC). There have been discussions about increasing the federal EITC for childless adults, which would result in an unexpected cost to Georgia. Georgia could address that issue now with a customized tax credit.

Finally, most of the tax changes over the past few years in Georgia have focused on corporations. It’s important to recognize that more than half of all business income nationally is taxed through the individual income tax, not the corporate income tax. That’s because more than nine out of 10 businesses are organized as “pass-throughs” – Partnerships, Sole Proprietorships or S Corporations.

That is true on the state level as well, which means there are more than 800,000 small businesses in Georgia that would benefit from this tax reform.