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Georgia’s government has accelerated the implementation of the state’s flat tax plan after big budget surpluses increased the plan’s viability. The Wall Street Journal’s editorial board explains:
State governments aren’t known to run ahead of schedule, but Georgia lawmakers plan to deliver early on a promised tax cut. The acceleration is made possible by another state budget surplus. As Gov. Brian Kemp put it, “this is what happens when you budget conservatively.”
The Governor announced the updated tax cuts Monday to set the agenda for the coming legislative session. The new proposal would enact a flat income-tax rate of 5.39% beginning next year, a leap forward from the state’s current six brackets and 5.75% top rate. Legislative leaders endorsed the reform and plan to vote next month to postdate the new rate to Jan. 1.
That would shorten the timeline of a tax reform already under way. Mr. Kemp approved legislation in 2022 to set Georgia on course for a flat tax, with the top rate set to fall each year until it settles at 4.99% in 2029. The new plan shaves an extra 0.1 point off the current rate ahead of schedule, and puts the tax on course to reach its terminal level by 2028.
States often slash tax rates in phases to make sure revenues hold up on the way down. Each year’s results offer a chance to slow down if needed, and there’s a reason that Georgia lawmakers are doing the opposite. The state accounting office reported a $5.3 billion surplus for 2022, and the income tax alone collected $17 billion.
Speeding up the reform will lock in the lower rates, since it’s politically tougher to reverse cuts once voters are used to them. That’s valuable insurance in a state like Georgia, where Democrats gained legislative seats in 2022. Proof of the concept is on view in Arizona, where former GOP Gov. Doug Ducey accelerated a flat-tax plan that has survived under his Democratic successor.
One temptation for Georgia lawmakers will be to set aside part of the surplus for rebate checks. At least 18 states offered one-off payments to taxpayers last year, including the Peach State, where each filer got back $250 at a total cost of $1.1 billion. These refunds are popular but they do nothing to improve a state’s tax burden or investment climate. Mr. Kemp’s spokesman has said he may do a rebate again, but the funds would do better financing a further and permanent rate reduction.
Action Line: States that balance their budgets and return money back to residents via tax cuts or rebates are working hard to put residents first, not the politics of governors or legislators. Find a state that treats you like a valued customer by searching Your Survival Guy’s 2023 Super States map. And click here to subscribe to my free monthly Survive & Thrive letter, and you’ll be among the first to receive Super States updates.
E.J. Smith - Your Survival Guy
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