Time to redraw our economic future

The General Assembly returned this past week for a special legislative session. They are redrawing the district lines for themselves and our congressional delegation to comply with a federal court order.

Yet, many Gold Dome denizens were buzzing instead about what lawmakers will do during their regular session starting next month. That’s the product of a lot of loose ends from earlier this year. It’s also the product of letting $10.7 billion go unspent over the past few years, above and beyond reserve accounts.

All of that money gives Georgia a once-in-a-lifetime opportunity. Lawmakers should remember how they arrived at this point: prudent fiscal management.

Every dollar collected in taxes is a dollar Georgians can’t save or invest – the lifeblood of the economy. Yes, tax dollars support important functions: K-12 and higher education, public safety, infrastructure, and safety net programs. But each tax dollar should be weighed against its potential use by the private sector.

One way to gauge how well lawmakers are doing is to compare the change in spending over time to changes in population and inflation. Over the past 10 years, the rate of inflation (nationally) plus Georgia’s rate of population growth has equaled about 3.6% per year, while the state budget has grown by about 5.4% per year. That means spending is growing about 1.5 times faster than population and prices are.

On the bright side, Georgia has spent less money than it has taken in. Total state treasury receipts over those same 10 years have grown by an average of about 7% per year. All in all, that represents a pretty good balance.

A post-pandemic surge in revenues, combined with cautious budgeting, is how we compiled that $10.7 billion “extra” surplus. How the General Assembly uses it will be crucial.

Predictably, there have been calls to create or expand government programs. And there may well be some wise ways to spend some of the surplus – on transportation infrastructure, for example, or reducing unfunded liabilities.

However, Georgia has not attracted people and companies with lavish public programs but as one of the lowest-spending states in the nation. That’s because it has also been one of the lowest-taxed states in the nation.

People and businesses flock to states where the government doesn’t crowd out their saving and investing – the means by which they pursue their hopes and dreams. Entrepreneurs stay and grow their businesses in places where they are free from overly burdensome taxation and regulation. That has been one of Georgia’s key competitive advantages.

But our neighbors are not sitting idly. States across the nation have been moving aggressively to position themselves as business-friendly through lower tax rates. 

Georgia has not sat still, either. Last year lawmakers voted to move to a flat personal income tax, exempt more income from taxation, and lower the rate to 5.49% with a path over time to 4.99%. But there’s more work to be done.
One model to follow is North Carolina, which has flattened its personal income tax and cut its rate almost in half since 2013. It has gone from having a top rate 2 percentage points higher than ours to one that is a point lower than ours. It has managed that by broadening its tax base: reducing tax breaks for a few favored industries, to lower rates for all. Its economy has soared as a result.

Another is Iowa. For years, its top income-tax rate was almost 9%. Over the past five years it has set aside more than $2 billion into a Taxpayer Relief Fund, giving lawmakers the cushion – and confidence – to cut tax rates sharply. Their reforms will take Iowa’s personal income tax to a flat rate of just 3.9% in 2026.

Our competitors have shown us the way to keep up with them. For now, our legislators are redrawing political lines, but starting next month they could also redraw the economic future.

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