The 14-year wait may finally be nearing an end.
Ever since Republicans took control of the governor’s mansion and state Senate in 2003 — the House took them two years longer — they have been talking about cutting and flattening Georgia’s income-tax rate. Despite multiple campaign promises and the recommendations of a special tax-reform commission, the closest they’ve come is passing a constitutional amendment to keep the top rate from rising above the current 6 percent.
But this past week the House approved a measure to set a single, flat rate of 5.4 percent. To offset the elimination of the lower five brackets, lawmakers added a tax credit for working families. (I expect senators to tweak that element to level things out for low-income Georgians without children.)
The net effect on revenues should be minimal: a savings to taxpayers of about $18 million a year, or about one-sixth of 1 percent of next year’s income-tax revenues, according to state forecasts.
That won’t satisfy Republicans’ appetites for tax cuts. But there are two considerations here.
First is that Gov. Nathan Deal has made it clear he won’t sign a bill with a significant cut to income-tax revenues, citing the need to maintain Georgia’s AAA credit rating and to continue adding to the state’s reserves. Other states have managed to implement well-designed tax cuts without hurting their credit — North Carolina is a pertinent example — but that argument will have to wait for Deal’s successor.
The second consideration is this bill, authored by Ways and Means Chairman Jay Powell, R-Camilla, makes important structural changes that stand on their own while also laying the groundwork for future rate reductions. Lowering the top tax rate by 10 percent would make Georgia more competitive with our neighbors and improve incentives to work and invest in our state. Flattening the brackets takes out needless complexity in the tax code. Another good provision in the bill indexes the standard and dependent deductions for inflation.
It’s a good thing this bill is moving along, because otherwise it hasn’t been a stellar legislative session for tax policy.
House members have passed a bill to tax more online sales and, late Friday, added a tax hike on used-car sales. Earlier Friday they defeated a tax on ride-hailing services such as Uber and Lyft, before taking the bill up again and passing it.
On the flip side, they have considered proposals that may not be terrible tax policy, but sure look bad. They passed a sales-tax exemption for repairs of yachts and other big boats, and were still weighing a tax break on jet-fuel purchases by commercial airlines. The latter bill would help Delta Air Lines, which gained and lost a similar tax break in recent years, generating strong feelings on both sides of the issue.
On an individual basis, it’s possible for someone (not me) to defend each of these smaller tax bills as a way to attract businesses or grow the economy. Absent more sweeping tax reform, some people just sigh and accept it as better than nothing.
That attitude is ultimately self-defeating. More sweeping tax reform has proved elusive in large part because, cumulatively, these smaller bills create more constituencies for a complex tax code.
The flat-tax bill is a step in the right direction. It’s too bad the other bills would make further progress all the more difficult.