A Senate panel has drastically revamped the House’s income tax cut proposal and tethered it to new limits on the state’s film tax credit program.
House GOP leadership unveiled a $1 billion tax cut plan early this month that would have flattened and reduced Georgia’s income tax to 5.25%, down from 5.75%.
Critics argued the proposal, House Bill 1437, would disproportionately benefit wealthy Georgians and raise taxes for about a half million people in spite of changes to the standard exemption meant to offset any tax increase caused by the flat tax.
Sen. Chuck Hufstetler, a Rome Republican who chairs the Senate Finance Committee, said he was troubled by the unintended consequences of the House proposal.
“I just didn’t want to spend over $1 billion dollars to raise taxes on people,” he told reporters Monday.
The Senate’s alternative proposal takes a more gradual approach that reaches lower income residents first by applying a lower tax rate to smaller amounts of income.
It would reduce the top rate slightly to 5.7% and replace the state’s six-step rate with two rates, which would eventually drop to 4.99% for everyone over the next decade. It also includes safeguards in the event state revenues slow, requiring revenues to grow by 3% to continue chipping away at the rate. It also now includes a non-refundable earned-income tax credit.
“We feel like we’ve got a plan that every single income bracket is getting a tax decrease,” Hufstetler said, saying he thought it was fairer to “help those at the bottom first.”
House Republicans pitched their proposal as a “responsible” way to provide tax relief and better compete with some neighboring states. Several GOP candidates for higher office have been pledging to eliminate the state income tax – which funds about half of the state budget – on the campaign trail.
“We don’t support the changes the Senate made,” said Kaleb McMichen, spokesman for House Speaker David Ralston.
The House bill cleared that chamber with a 115-52 vote, with more than a dozen Democrats backing the bill.
The Senate version would also cap the film tax credit program at $900 million and make the credits non-transferable, meaning film production companies would no longer be able to sell them. Unused tax credits would need to be cashed in this year.
“To me, there’s big problems with the program,” Hufstetler said. “But what we’re saying is in the meantime, let’s put a reasonable cap in place on this to keep it from getting out of control.”
The film tax credit is often attributed with building the state’s booming film industry but it has also been at the center of critical state audits, one of which found the companies abused the generous tax program. The program has enjoyed broad support from state leaders.
“I just very feel very cautionary about our whacking this tax credit that’s made us the third highest state in the country for film activity,” said Sen. Nan Orrock, an Atlanta Democrat. “So it’s hard to have a comfort level with that being added in. It’s just it just seems incautious to me.”
Budget analysts are still calculating the cost of the Senate’s proposal, but Hufstetler said the proposal would cost about $230 million the first year. The cost would grow over time.
Danny Kanso, a senior tax and budget policy analyst with the Georgia Budget and Policy Institute, called the Senate version an improvement but still cautioned against abandoning a graduated tax approach that considers income.
“Members of the Senate have made a number of positive changes that would make Georgia’s tax code fairer, including adding a non-refundable state Earned Income Tax Credit and repurposing subsidies that primarily go to out-of-state corporations through the film tax credit,” Kanso said in a statement. “However, as the legislation moves through the process, lawmakers should reconsider the legislation’s ultimate shift to a flat (tax rate) that would occur in 2032.”
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