Gov. Nathan Deal’s plan to reduce the revenue windfall the state will receive from federal tax changes approved by Congress in December is getting a frosty reception in the General Assembly.
The measure, House Bill 918, aims to slice into the estimated $4.7 billion income tax windfall over the next five years that Georgia would receive if lawmakers don’t make changes to the state code. It would cut the estimated windfall to $1.15 billion over the five years.
Deal officials say a cushion is needed because the state really isn’t sure about the federal law’s effect: The windfall from higher taxes could be much less or much more.
Georgia — and many other states — would receive a windfall because the federal law limits or eliminates some of the deductions Georgians have used when figuring their state taxes in the past and made it far more likely that ratepayers will use the standard federal deduction, rather than lowering their state taxable income using itemized deductions.
So while many Georgians may pay less in federal taxes, at least some could wind up with bigger state tax bills unless lawmakers make some changes in the tax code.
Deal initially said he wanted lawmakers to wait until the state’s 2019 legislative session to figure out how to address the windfall because the state can now only estimate the impact of the federal law. But Deal changed his mind after lawmakers — most of whom are either running for higher office or seeking re-election this year — began calling for tax cuts.
Under the measure, Georgia taxpayers would be allowed to take the enhanced federal standard deduction — which will about double under the plan approved by Congress — but itemize deductions when they do their state taxes.
Currently, if Georgians take the standard deduction on their federal tax return, they must do the same on their state form. That is an issue in part because the state standard deduction — $3,000 for joint filing couples — is fairly low.
In addition, Deal’s bill would increase the state personal exemption by 25 percent.
During the first hearing on the bill Wednesday, House tax writers made it clear they want the windfall whacked further.
State Rep. Chuck Martin, R-Alpharetta, a member of the House Ways and Means Committee, said doing nothing would be “horrible” and mean a tax increase for many Georgians. If lawmakers pass Deal’s plan, he said, the impact would merely be “bad.”
His assessment of Deal’s plan: “We ain’t there yet.”
State Rep. Sam Teasley, R-Marietta, another member of the committee, said lawmakers ought to take a bolder approach.
“I think we have a very unique opportunity to lower (state income tax) rates,” he said.
Teasley suggested, as a starting point, House Bill 329, which passed the chamber last year and lowered the top state income tax rate from 6 percent to 5.4 percent.
The Deal administration looked at the impact of lowering the rate to 5.5 percent and found that it would more than eliminate the windfall over the next three years.
House Ways and Means Chairman Jay Powell, R-Camilla, said he was also concerned that the governor’s proposal would make filing taxes much more complicated.
But state Rep. Chuck Efstration, a Deal floor leader and sponsor of the bill, urged colleagues to consider the plan, noting that they could cut taxes further in the future.
“There will be an opportunity for greater tax relief, which we do not have if we do nothing,” said Efstration, a Republican from Dacula.
State income taxes are the single biggest source of revenue for the state, and officials in the Deal administration have indicated that the governor would likely fight any effort to cut the rate and veto any bill that contained rate cuts.
But lawmakers are squeamish about the prospects of running for re-election this year after passing a plan that doesn’t wipe out the windfall because they could be accused of raising state income taxes.
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