The 2023 legislative session is beginning soon.
When lawmakers arrive at the Capitol, there will be lots of extra money under the tree – er, rotunda – to hand out. Or at least that’s the way some folks are thinking about the $6 billion-plus surplus the state ran in the previous budget year.
If anyone is thinking about passing out this money as gifts, however, they should think again. That money came from taxpayers and, to the greatest extent possible, should be returned to them.
The question is how.
Fortunately, lawmakers already voted to reduce what Georgians owe in income taxes by about $1 billion per year. But their plan doesn’t begin until 2024, and will take several years to phase in completely.
They need only accelerate those changes. Let the reforms instead begin in 2023, and let more of them kick in sooner.
Some people complain that lowering taxes right now would be inflationary, like the stimulus checks Congress repeatedly sent out during the first 12 months of the pandemic. But tax-rate cuts are one of the least inflationary actions the General Assembly could take with this surplus.
The primary alternative to tax cuts is more spending. If you’re worried about inflation, that would be a disastrous alternative.
The key driver of inflation has been excess demand. That’s why those stimulus checks – and all of the other money Washington sent coursing through the economy – pushed up prices so sharply. There were trillions of additional dollars chasing fewer goods and services than normal, due to business closings.
Although the Federal Reserve’s rate increases have begun to dampen prices, we probably haven’t seen the last of inflation because we haven’t seen the last of this excess money in the economy. Or the knock-on effects of that spending spree, which have kept prices and wages higher.
In Georgia alone, there are billions of borrowed federal dollars still sitting on the sideline, including the various pandemic emergency packages and as the federal infrastructure bill Congress passed last year. That’s before we get to the state’s own surplus, or the money that local governments including school districts received from Washington but haven’t yet spent.
In short, state government spending – which never really slowed down – is still set to grow.
It’s specifically set to grow in areas, such as transportation and broadband infrastructure, that normally would be good uses of one-time money. At this point, though, the most likely outcome of juicing infrastructure spending even further would be to force the state to bid against itself for a finite amount of materials, supplies and workers. There may be some one-time capital spending that makes sense, such as updating government computer systems in a way that would increase state employees’ productivity, but not $6 billion worth.
And a turn instead to new programs would increase the risk that this uptick in spending would produce bigger headaches in the future, when revenues inevitably fall.
So tax cuts make more sense. But again, it’s important to implement them the right way.
Sending rebate checks, as Georgia did earlier this year, could have a similar inflationary impact as federal stimulus checks. In both cases, we’re talking about putting more money back into the economy without producing more goods and services.
But a rate cut going forward solves that problem. To benefit, one must earn income. To benefit more, one must earn more income. Generally speaking, that means working more, saving more or investing more.
Not only are those actions the lifeblood of the economy, but they help bring supply back in line with demand. That helps battle inflation.
There are other demands on the surplus, such as backfilling the motor-fuel tax revenues that have been suspended for the past several months and offsetting higher prices for the things the state government must buy.
But lawmakers can position Georgia for continued, greater prosperity by accelerating the tax cuts they’ve already planned for the future.