Atlanta Business Chronicle Quotes McCutchen on Ga. Tax Reform Bill

Foundation president Kelly McCutchen was quoted in an article in the March 4-10, 2016 edition of the Atlanta Business Chronicle by Dave Williams, “Income tax cut moving through General Assembly.”  The article is reprinted below and can be accessed online at (Subscription required.)

Income tax cut moving through General Assembly
By Dave Williams

Georgians may get a chance to vote this fall to reduce state income taxes for the first time since the 1930s.

The Georgia Senate passed a constitutional amendment Feb. 29 that would roll back the state income tax subject to certain budgetary triggers. If it gets through the state House of Representatives, voters would decide the measure on the November statewide ballot.

A separate bill also before the Senate contains an additional income tax reduction. If both measures become law, Georgia’s income tax rate would go from 6 percent to 5.2 percent.

The General Assembly passed comprehensive tax reform legislation four years ago, highlighted by abolishing the annual “birthday tax” on car registrations and phasing out the sales tax on energy used in manufacturing. But none of those changes addressed the state income tax.

“We haven’t successfully lowered our income tax in 79 years,” said Senate Finance Committee Chairman Judson Hill, R-Marietta, chief sponsor of the constitutional amendment.

Kelly McCutchen, president of the Georgia Public Policy Foundation, a free-market think tank, said the Georgia tax cut proposals are aimed at keeping pace with North Carolina, one of Georgia’s chief jobs competitors. Lawmakers there passed two income tax reductions in the last three years, lowering the tax rate from 7.75 percent to 5.75 percent.

“North Carolina gave us a good excuse from a competitiveness perspective,” McCutchen said.

Under the proposed constitutional amendment, Georgia’s income tax would drop by 0.1 percent on or after the beginning of 2018 if the state during the previous fiscal year had a minimum of $23.6 billion in general fund revenue on hand and at least 8 percent of that amount set aside in reserves. The tax rate would go down an additional 0.1 percent on or after the start of 2020 if the state had at least $24.2 billion in the general fund during the previous fiscal year and still had a minimum of 8 percent of that in its reserves.

“What it’s trying to do is allow for growth to cover the increased cost of government,” McCutchen said, referring to the built-in budgetary triggers. “But income above and beyond that we want to use for tax reduction.”

Hill said the “rainy-day” trigger makes the measure fiscally responsible by ensuring enough reserves are available to cover education and other core government services before a tax cut could take effect.

But opponents say inserting such triggers into the state constitution could jeopardize Georgia’s AAA bond rating.

“The national rating agencies really dislike constitutional caps and triggers that tie the long-term hands of the state,” said Wesley Tharpe, tax policy analyst for the left-leaning Georgia Budget and Policy Institute. “It’s a potentially more dangerous proposition than a tax cut passed as a statute.”

Senate Democrats, who voted against the constitutional amendment en masse, say it could leave Georgia unable to respond to unforeseen emergencies.

“You’re going to have a [Hurricane] Katrina one day, and you won’t have the money,” said Sen. David Lucas, D-Macon.

McCutchen acknowledged a recession is a concern anytime lawmakers consider cutting taxes. But he said the rainy-day trigger protects against the effects of a downturn.

“It’s pretty conservative,” McCutchen said of Hill’s measure. “But it does send a signal that Georgia is finally embarking on reducing its income tax.”

However, Tharpe argued that even reducing income taxes by 0.2 percent would be significant considering that Georgia gets about half of its revenue from income taxes.

“Even going from 6 percent to 5.8 percent is $300 million to $400 million a year in lost revenue,” he said. “That’s more than Georgia spends on its public health department and almost as much as it spends on the technical college system.”

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