Georgia Should Seize the Opportunity for Deeper Tax Cuts

H ow low can you go? Many states are asking that question of their tax codes, flush with inflated revenues and more than a little envious of how no-income-tax states such as Florida, Tennessee, and Texas are attracting employers and, just as important nowadays, workers.

Georgia occupies an interesting place on the list. It continues to grow at the same million-people-per-decade rate it has maintained since the 1980s. And it’s already a low-tax state: Many of the nonpartisan Tax Foundation’s various lists rank Georgia among the ten friendliest states to taxpayers.

Lawmakers continue to cut, albeit in a manner befitting the third word in the state’s motto: Wisdom, Justice, Moderation. The question is whether this amounts to merely nibbling around the edges at a time when other states are taking much larger bites.

One bill passed during the annual legislative session that ended March 28 will accelerate the state’s planned cut in the personal income-tax rate this year to 5.39 percent, from the original 5.49 percent. Another reduces the state’s dependent exemption by $1,000, meaning a traditional family of four won’t pay tax on its first $32,000 of earnings. A third also cuts the state’s corporate-income-tax rate to 5.39 percent and recouples it with its personal levy going forward.

Now, no one’s going to turn down some extra money in their pocket for each child they’re responsible for rearing — but neither will it offset the inflation of recent years. And how about an extra dollar in your pocket per thousand of taxable income?

Meanwhile, Georgia isn’t only sandwiched between Tennessee and Florida. It’s also adjacent to North Carolina, which leapfrogged Georgia in tax competitiveness over the past decade by cutting its personal income-tax rate from 7.75 percent in 2013 to 4.5 percent as of this year.

It’s nice to be 43rd in state and local tax collections per capita, as Georgia is, according to the Tax Foundation’s latest data. But it’s less of a bragging point when four of the lower-taxing states are on your borders. Tough neighborhood.

The structure of Georgia’s tax code is also more of a problem than one might expect based on its tax collections. The Tax Foundation’s State Business Tax Climate Index evaluates not just the level of taxation in a state but the structure of its tax code. After all, what matters is not just how much a state taxes its people, but how it taxes them. On that ranking, Georgia lands with a bit of a thud at just 32nd overall.

Why? A comparison to Florida, the fourth-ranked state on that index, is instructive. Counterintuitively, given that we’re talking about the business-tax climate, Georgia comes out ahead of its southern neighbor in corporate income taxes. But it ranks lower not only in personal income tax (35th vs. first) but also in sales tax (31st vs. 21st) and property tax (28th vs. twelfth).

Then there’s another data point that loomed over this year’s entire legislative session: the $10.7 billion in “undesignated surplus” Georgia reported when fiscal 2023 ended last June. That’s equal to about one-third of that year’s general-fund budget. It’s also on top of the state’s official reserve accounts, which total another $7.8 billion. It’s essentially $10.7 billion that won’t fit in the state’s piggy bank.

That extra surplus could be employed as a cushion to allow for more aggressive income-tax cuts. The Georgia Public Policy Foundation and a sister think tank, the Buckeye Institute, published a study in February showing how Georgia could cut its income-tax rate to 3.99 percent by 2030, a full percentage point below the cuts set in motion by a law passed in 2022. Doing so would keep the state’s inflation-adjusted general revenues flat over that period of time. But having that “extra” $10.7 billion sitting in the bank means lawmakers have enough room to cut taxes while also increasing spending just enough to accommodate population growth (particularly in education and health care).

Some lawmakers agreed it was time to cut taxes more deeply, but they didn’t win the day. Spending rose, but also relatively moderately: Although revenues are shaping up to be essentially flat for the third straight year, another surplus is likely.

So, we can expect the opportunity to remain there for the taking in 2025. But Georgians can’t count on other states taking things just as slowly. Georgia’s lawmakers could show wisdom — that first word in our motto — by seizing the opportunity to maintain our competitiveness.