A lot of policymaking — and political campaigning — involves the conditional:
“If I get elected …”
“If the situation is right …”
As the General Assembly enters the final weeks of its 2024 session, the conditions are right to see who is being serious about cutting taxes.
Years of cautious budgeting and booming revenues have filled Georgia’s piggy bank. Beyond the state’s official reserves, almost $11 billion sat unspoken for, as an “undesignated surplus,” when the current fiscal year began last summer.
The inflow has leveled off, but the current year’s revenues through seven months were running just ahead of last year’s record pace. That comes with a slight asterisk: A year ago, the state wasn’t collecting the gas tax but now it is — which accounts for a nearly billion-dollar swing. But given that the state used general funds to backfill the suspended tax, the net effect is roughly the same.
Consider also that Gov. Brian Kemp’s revenue estimate, which caps the amount of money legislators can appropriate, assumes a sharper decline than the current trajectory indicates. That means surplus funds may grow, not shrink.
As I detailed recently, some of the surplus is being spent on one-time expenses such as new roads, which normally would be funded with bonded debt. That’s good financial stewardship. But the state still can expect to have billions in extra cash on hand once this budget year closes on June 30.
The conditions are right to provide relief for taxpayers.
Some relief is already on the way. Under current law, the personal income tax rate fell at the start of 2024, and the state House has passed a bill trimming it further. The total cut after that bill would be about $1 billion.
That’s not peanuts, but the cushion in the bank should embolden lawmakers to be more aggressive.
Some ways to be aggressive are featured in a new study the Georgia Public Policy Foundation co-published with the Buckeye Institute. That study, “Next Steps for Georgia Tax Reform,” outlined four different scenarios lawmakers could pursue.
One was to eliminate the corporate income tax. Another was to build toward a $5 billion cut in the personal income tax. A third was to reduce tax credits by $500 million to offset an equal cut in personal income taxes.
I want to highlight the fourth one, which is most in line with current law. Two years ago, when lawmakers decided to flatten Georgia’s personal income tax and lower the rate to 5.49% this year, they also set in motion a series of future rate cuts. That schedule calls for cuts of 0.1 percentage points per year, as long as certain revenue “triggers” are met, until the rate hits 4.99%.
Our study looked at accelerating that pace, reducing the tax by 0.2 points per year and arriving at a rate of 3.99% as soon as 2030.
The economic benefits would be substantial. The study found Georgia’s economy would grow by more than $5 billion above the baseline for 2030 while adding some 16,000 jobs. Consumers would spend more, and entrepreneurs and businesses would invest more. A lower tax rate could also help attract the additional workers Georgia needs to fill the impressive number of new jobs being created in our state.
Adjusted for inflation, tax revenues would remain basically flat over the next several years. But keep in mind, the state has enough extra surplus to make up for more than half of the forgone revenue during those years. So actual spending wouldn’t stagnate; it would simply grow less rapidly than in recent years. That wouldn’t be a bad thing.
The alternative is for our lawmakers to spend all of the surplus, while our neighboring states are busy cutting their tax rates. Rather than honing our competitiveness, we would risk falling behind.
Georgia has a good thing going. Now is not the time to let others pass us by.
