Georgia has made progress in recent years on lowering its income tax rate. The current 5.19% flat tax rate is scheduled to be lowered to 4.99% using revenue triggers. In order to become even more economically competitive in the region and to allow taxpayers to keep more of their hard-earned income, policymakers must not become complacent.
Lt. Gov. Burt Jones recently established the Georgia Senate Committee on Eliminating Georgia’s Income Tax, which is studying how to further lower the income tax and place it on a path toward getting rid of it completely. If the objective is lowering the rate even further, then extending the revenue triggers for future rate reduction is a possibility.
Revenue triggers, if designed correctly, serve as a prudent means to lower tax rates. However, policymakers could also borrow an idea from Iowa. Iowa, which was a leader in the state “flat tax revolution,” has since lowered the income tax by almost 60% thanks to the leadership of Gov. Kim Reynolds and the state legislature. A state that once had a progressive multi-rate income tax with a top rate of 8.98%, now has a 3.8%flat tax rate.
This achievement was the direct result of conservative budgeting and the creation of the Taxpayer Relief Fund.
The Taxpayer Relief Fund originated in 2011 as the Taxpayer Trust Fund, which the legislature created to capture excess revenue for the purpose of income tax relief. Lawmakers believed it would ensure surplus tax collections ended up back in the pockets of taxpayers, not used for more state-level spending. The fund was originally capped at $60 million, and Iowans received credits on their state tax returns each year there was a balance.
A 2018 tax reform measure renamed the Taxpayer Trust Fund as the Taxpayer Relief Fund, removed the $60 million cap, and ended the automatic return of excess revenue to taxpayers. Instead, the legislature is now tasked with returning those dollars through tax relief measures.
Tax dollars only flow into the Taxpayer Relief Fund after the state’s Cash Reserve Fund and Economic Emergency Fund (Iowa’s “rainy day funds”) are both filled to their statutory requirements. The Taxpayer Relief Fund has consequently grown from $8.4 million in fiscal year 2018 to $3.6 billion in fiscal year 2026, thanks to Iowa’s conservative budgeting.
Unfortunately, such large balances create temptation for additional government spending. Recently, some Iowa policymakers have even suggested “raiding” the Taxpayer Relief Fund to send property tax rebate checks back to taxpayers.
This is one weakness with Iowa’s Taxpayer Relief Fund –it is not protected from legislators who would like to utilize the dollars for something other than income tax relief. This is an important lesson for Georgia policymakers.
With its $3.6 billion balance, the fund is an attractive target for those who advocate for increased state spending, subsidies for local governments, or property tax “buy downs.” Some of these proposals have already been introduced. Constitutional protection would honor the fund’s original purpose and safeguard taxpayer dollars from being diverted to new spending programs.
The Taxpayer Relief Fund is effective, especially when it is combined with conservative budgeting. That is why it must be protected in order to ensure that those dollars are returned to taxpayers in the form of income tax relief. Otherwise, a large balance encourages the temptation to use it for additional government spending.
At the same time, the Taxpayer Relief Fund should not be viewed as a cushion for the budget during economic downtimes.
The benefits of creating a Taxpayer Relief Fund are substantial. Just as in Iowa, any surplus dollars could be dedicated to the Fund and be used to lower the income tax rate. A Taxpayer Relief Fund could work in conjunction with a revenue trigger, or by itself in returning the surplus collection of tax dollars back to taxpayers by lowering rates.
Creating a Taxpayer Relief Fund is one way to help ensure future rate reduction and place Georgia on the right fiscal path to ultimately achieve the goal of eliminating the income tax.