A great deal of GOP orthodoxy has been challenged over the past couple of years: on the merits of free trade, on the value of international alliances such as NATO, and on the urgency of taming federal deficits and debt, among other things.
But one constant, at least, has remained. The income tax should err on the side of being simple rather than complicated, broad-based rather than riddled with exemptions, flat rather than stretched out across multiple brackets — and, with all that done, as low as practicable when it comes to rates.
The current legislative session, and the elections to follow later this year, may well hinge on whether Georgia Republicans stick to those beliefs.
When President Donald Trump signed the Tax Cuts and Jobs Act into law back in December, Georgia and other states that commonly adopt components of federal tax law into their own codes knew there would be an impact. What they didn’t necessarily know was how big an impact.
Now we know. Projections by the state’s official number-crunchers show adopting the federal changes would yield an extra $120 million in the current budget year (which ends June 30), an extra $786 million in the following budget year, and an extra $1.27 billion in the budget year after that, at which point the increases would level off. In all, the forecast anticipates a backdoor state-tax increase of $4.73 billion over the next four and a half years if nothing else is done.
Now, doing nothing else isn’t seen as option. But what, exactly, to do is very much a matter of debate.
The standard Republican response to this scenario ought to be obvious: Offset the higher taxes from this broadened base by flattening and lowering income-tax rates. Georgia’s steeply, and needlessly, progressive rate structure could be condensed to a single rate. From there, the top rate of 6 percent could be reduced by as much as prudence dictates, given that these are just estimates. The projections show the rate could end up somewhere between 5.5 percent and 5.75 percent and still be revenue-neutral.
If the numbers come in as large as, or larger than, expected, the top rate could fall further. The important thing is to get the new structure in place correctly.
But that may not be what happens.
Instead, the first proposal out of the gate, from the governor’s office, is to increase the personal exemption by one-quarter and allow Georgians to itemize their deductions even if they take the standard deduction on their federal tax returns (currently, you can only itemize on your state return if you also itemize federally).
That approach would be very close to revenue-neutral this year, with a growing surplus in future years. But, crucially, those future surpluses would not be large enough to allow lawmakers to come back down the road and lower rates appreciably. If legislators follow this approach, they’ll have tied their hands for the foreseeable future.
What’s more, it doesn’t get much more complex than telling many Georgians they need to calculate their taxes twice: once for their federal returns, then again to see whether they should itemize on their state returns.
This is a once-in-a-generation opportunity to fix Georgia’s tax code in ways Republicans have long recognized needs to be done. Legislators can’t afford to miss it.