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Senate panel pushes Georgia tax cut despite federal penalty

March 16, 2021 GMT
Georgia Gov. Brian Kemp (from left), House Speaker David Ralston, and Lt. Gov. Geoff Duncan attend a press conference about expanding internet access in Georgia on Monday, Feb 8, 2021, at the Georgia Capitol in Atlanta. (Curtis Compton/Atlanta Journal-Constitution via AP)
Georgia Gov. Brian Kemp (from left), House Speaker David Ralston, and Lt. Gov. Geoff Duncan attend a press conference about expanding internet access in Georgia on Monday, Feb 8, 2021, at the Georgia Capitol in Atlanta. (Curtis Compton/Atlanta Journal-Constitution via AP)

A Georgia Senate committee is moving forward with a $140 million state income tax cut despite warnings that it could cost the state federal aid.

The Senate Finance Committee voted unanimously on Tuesday for House Bill 593, which would raise the amount of money that someone could earn before starting to pay state income taxes. The standard deduction for an individual would rise from $4,600 to $5,400, while the standard deduction for a married couple filing jointly would rise from $6,000 to $7,100.

The bill moves to the full Senate for more debate.

Support comes despite a provision in the recent federal relief bill that says states will lose a dollar in aid for every tax dollar they cut through 2024. Georgia is in line for $4.7 billion in federal aid, a giant infusion of cash for a state considering a budget that spends $27.3 billion in state tax money.

Gov. Brian Kemp and House Speaker David Ralston, both Republicans, have spoken out against the provision.

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“Democrats in Washington, D.C., are now telling states they cannot cut their taxes, create new incentives to attract investment, or expand or incentivize school choice,” Kemp told reporters last week. “But bloated spending, special pork projects, a long list of other things, as well as bailing out the states that have poorly managed their economies are all fine by Washington’s standards.”

The tax cut would save individual tax filers up to $43 a year, and married couples filing jointly up to $63.

“It’s kind of a modest and measured tax break for working Georgians and I look at it as a way for our citizens to keep more of their hard-earned money,” House Ways and Means Committee Chairman Shaw Blackmon, a Bonaire Republican and the bill’s sponsor, told senators Tuesday.

If approved, the tax cut would take effect on Jan. 1 of next year.

Danny Kanso, a senior policy analyst with the liberal-leaning Georgia Budget and Policy Institute, told senators that his group would normally support an increase in the standard deduction. He urged senators to find another way to get more money to people, such as direct payments or an earned income tax credit that would subsidize the income of the working poor, saying that otherwise Georgia could forfeit $200 million over the next two years.

Senate Finance Committee Chairman Chuck Hufstetler, a Rome Republican, said he’s concerned about losing federal aid, but it may be possible to argue the state is cutting taxes using its own revenue.

“Others would say that our revenues are up this year, and we’re not using this money for tax cuts,” Hufstetler said.

Sen. Bruce Thompson, a Republican from White, said the state should ignore the federal penalty.

“The reality of it is, our economy is generated not from the federal government,” Thompson said. “Our economy is generated from the people who live within our state. So returning that money back incentivizes them to continue to invest.”

Before the pandemic scrambled state revenues last year, Ralston was eyeing a larger tax cut, a second reduction in the state’s top income tax rate. Legislators cut the top income tax rate from 6% to 5.75% in 2019. Republicans envisioned an additional quarter-percentage decrease to 5.5%. Analysts estimate the state would forgo $500 million to $550 million in revenue from another cut.

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Follow Jeff Amy on Twitter at http://twitter.com/jeffamy.