Georgia lawmakers have agreed to a plan to create a flat income tax of 4.99% by 2029 or later, cutting taxes by more than $1 billion and fulfilling a Republican priority key in the closing hours of the 2022 legislative session on Monday evening.
The House voted 167 to 2 and the Senate voted 41 to 13 to approve a joint House-Senate agreement on Bill 1437, sending it to Governor Brian Kemp, who indicated he would approve a reduction.
“It’s simple, fair, and allows hard-working Georgians to keep more of their hard-earned money,” said House Ways and Means Committee Chairman Shaw Blackmon, a Bonaire Republican.
No formal revenue estimates have been prepared for what would be a major rewrite of the state’s tax code. Senate Finance Committee Chairman Chuck Hufstetler, a Republican from Rome, said the cut would cost $455 million in the first year and Blackmon said it would cost more than $1.2 billion once fully promulgated.
The measure would result in an immediate 5.49% flat tax on Jan. 1, 2024, a change most taxpayers would notice when they file their income taxes in 2025. Now Georgia’s highest tax rate is 5.75%, with lower slices below.
In an attempt to prevent the measure from raising taxes for low-income taxpayers, the measure would create increased standard exemptions covering amounts a person might earn before they begin paying state income taxes. A single taxpayer or head of household would immediately get a $12,000 exemption. Married couples filing jointly would benefit from an exemption that would increase to $24,000 by 2030. Taxpayers could deduct $3,000 for each child or other dependant.
After the first reduction, the rate would gradually decrease by 0.1 percentage point each year until it reached 4.99%. However, the tax cuts would stop any year in which state revenue does not increase by 3%, any year in which revenue is lower than the previous five years, or any year in which the state doesn’t have more money in his savings account than the tax cut would cost.
“I believe Bill will be responsible,” Hufstetler said.
Those protections were demanded by Republican senators who feared the tax cut would starve the state of needed revenue after Georgia emerged from nearly two decades of austerity cuts to the K-schools funding formula. 12 of the state. State tax revenue jumped by more than $30 billion last year, allowing for major wage and spending increases.
The bill calls on the House and Senate to conduct a thorough review of state tax relief with a report expected in December. Hufstetler said Gov. Brian Kemp also agreed to create by executive order a tax council that would conduct a comprehensive review of state revenues.
The tax cut was a key priority for Republicans, including House Speaker David Ralston and Kemp, but negotiations dragged through the closing day of the 2022 session, at times threatening to withdraw the legislation for further tax relief.
Kemp, in his usual victory lap speech early in the evening, could not thank lawmakers for their efforts, but instead had to urge them to keep working on a “crucially important conversation.”
The House kicked off the debate with a plan that would have created a flat rate of 5.25% in 2024. It would have eliminated many deductions, but increased the amount of income a person could earn before paying tax on Income. Blackmon said that was not the case with the compromise.
“We are seeing savings across the board,” he said. “We haven’t found anyone who pays more at all.”
The Senate voted 51-4 on Friday in favor of its version of Bill 1437, which would phase in a 4.99% flat income tax by 2032 or later. Like the final bill, it included the trigger mechanisms. Like the final bill, it retained itemized deductions, meaning it would avoid the problem of higher taxes for some wealthy taxpayers.
One issue that prompted Republicans on both sides of the dispute to act was the possibility that Democrat Stacey Abrams could be elected governor later this year.
Democrats initially opposed both plans, saying a flat tax was regressive and too many benefits went to the wealthiest Georgians. They said that lower tax collections would harm the state’s ability to deliver services. But most Democrats went bankrupt and voted for the bill on Monday.
“Many of my caucus colleagues voted no on this bill, but once the bill is improved, many of us are voting yes to give Georgians back their hard-earned money.” said House Minority Whip David Wilkerson, a Democrat from Powder Springs.
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