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Georgia Leaders Propose Flat Tax, Rate Cut

After a Covid-induced hiatus, tax reform is back on the agenda under the Gold Dome. On March 1, Speaker of the House David Ralston and Rep. Shaw Blackmon, chairman of the House Ways and Means Committee, unveiled legislation that would continue reducing the burden of Georgia’s personal income tax.

The bill has a number of provisions, including:

  • condensing six brackets into one flat rate;
  • setting that rate at 5.25%, half a percentage point lower than the current top rate of 5.75%;
  • combining the standard deduction and personal exemption into a single, higher “standard exemption” of $12,000 for individuals and $24,000 for married couples filing jointly, and keeping the exemption of $3,000 per dependent;
  • eliminating most itemized deductions, except the one for charitable gifts; and
  • preserving current exemptions or exclusions for retirement income, earned retirement or disability income of $4,000, disability income for veterans, Georgia 529 Plan contributions, and Health Savings Account contributions.

State officials estimated the legislation would reduce income-tax revenues by $1 billion per year once it took effect in 2024. The Georgia Public Policy Foundation is working to produce an independent estimate of the bill’s fiscal and economic effects similar to those modeled for our October 2021 analysis of tax-reform options. That new estimate is expected within days.

However, it is already clear that many Georgia families would be better off under the legislation. A family of four would not pay tax on their first $30,000 of income, up from $20,500 currently. A single taxpayer would have $12,000 of income shielded from taxation, up from $8,100 today. Combined with paying a lower rate than today’s top marginal rate, virtually any Georgia taxpayer who typically takes the standard deduction should have a lower tax bill. Some taxpayers with very large itemized deductions, however, may pay more; state officials estimated this would apply to less than 5% of taxpayers.

This bill follows legislation in 2018 that expanded the standard deduction and then lowered the top marginal tax rate from 6% to 5.75%. A third step to reduce the top rate further, to 5.5%, required reauthorization in 2020 and was left undone when the pandemic hit and state revenues were expected to tumble. In fact, revenues have increased by billions of dollars during the past two fiscal years, opening the door to a renewed push for tax reform.