Don’t Bring D.C. Math to Georgia

It seems every year adds a bit of national political rancor to our more agreeable state. The Georgia General Assembly in particular has remained both more civil and—no coincidence—more productive than the United States Congress, though that too has ebbed over time.

Georgia’s more constructive way of doing legislative business is important to preserve. And here’s another federal import we need to avoid: D.C.-style math.

This year’s session was dominated by a pair of tax debates: one over income taxes and one concerning property taxes. Both began with proposals that were very ambitious; some might have called them unrealistic. But by the time the finish line was in sight, lawmakers had whittled each down to a fiscally responsible plan for slowing the growth of tax revenues at both the state level (regarding the income tax) and among local governments (property tax).

Yet, the opposition to each plan featured the common complaint that each amounted to “cutting” revenues–i.e., the ability to spend more taxpayer dollars–year over year well into the future. Only in Washington, D.C., could anyone believe that was true.

Take the income tax plan that awaits Governor Brian Kemp’s signature. It includes a cut to current-year revenues both by lowering the tax rate to 4.99% from the current rate of 5.19% and by increasing both the standard deduction and dependent exemptions by about one-quarter. (For example, the standard deduction for married couples filing jointly would rise to $30,000 per year from today’s $24,000. Single filers and heads of households would see proportional changes in their own deductions.) The bill would offset a portion of those cuts by eliminating a few tax exemptions, although lawmakers in separate bills increased other tax exemptions.

After this year, the bill provides for further cuts to the income-tax rate until it reaches 3.99%, and for further expansions of the standard deduction and dependent exemption that would total another 20% of income excluded from taxation (to $36,000 for married couples filing jointly). But those changes would take effect over a period of at least eight years. And they would take effect only if state tax revenues were to rise.

In fact, each change would require revenues in the previous fiscal year to exceed the revenues in each of the three preceding fiscal years. The governor at the time also would have to forecast at least a 3% increase in revenues for the fiscal year to come. What’s more, the state would have to have more money in its reserves than it was projected to lose due to the next round of cuts.

The bill also establishes a Taxpayers Relief Fund, championed by the Georgia Public Policy Foundation, to ensure the state keeps enough money in reserve to hedge against any unexpected decline in revenues.

In other words, while the current year’s tax cut might be substantial, every subsequent change would necessarily mean revenues were higher than before. As Georgia has done over the past few years, it would be cutting out of growth—not slashing revenues, which would then require budget cuts.

Would revenues (and thus spending) grow more slowly than otherwise? Absolutely. Would that amount to a reckless “cutting” of revenue? Only if you learned math in Washington.

Then there’s the property tax bill that passed the House but ultimately was rejected by the Senate. It, too, elicited concerns about falling government revenues. And yet it would have done no such thing.

The primary feature of that bill was a cap on growth in property tax revenues. Note the words “cap” and “growth.” Neither of those words is in any way a synonym for “cut” or “reduction.” 

Rather than cutting property tax revenues, the bill would have limited the increase in any local government’s property tax revenues to the greater of 3% or the rate of inflation. By definition, that means revenues would be rising. And they could rise even more due to growth from new development, which was excluded from the cap.

Likewise, the bill that did pass would limit the annual growth of homeowners’ assessments to the rate of inflation. That’s not a cut either, not least because the bill that passed did not touch the millage rates local governments can charge.

As always, we can freely debate whether a particular policy change is the right thing to do. But Georgia will be better off if we have those debates without Washington-style distortions that treat smaller increases as “cuts.”