{G} eorgia lawmakers are enhancing the appeal of an income-tax overhaul first set in motion back in 2018. Effective January 1, 2024, Georgia’s tax code will transition from a six-rate progressive tax structure to a streamlined, single-rate flat tax. As the dawn of Georgia’s flat-tax implementation approaches, state leaders have opted to give Georgians an early tax cut.
Governor Brian Kemp, Speaker Jon Burns, and Lieutenant Governor Burt Jones have unveiled a plan to expedite income-tax reductions for Georgia families. Under current law, Georgia’s income tax is slated to decrease from 5.75 percent to 5.49 percent on January 1, 2024, and then to 5.39 percent in 2025.
Why wait? seems to be the question Georgia’s leaders are posing to themselves.
Eager to deliver prompt tax relief, state leaders are proposing new legislation, endorsed by the trio of leaders, to lower the tax rate to 5.39 percent on January 1, 2024, a full year earlier than initially planned. This would culminate a half decade of work toward a flat tax and set Georgia on an accelerated path to greater competitiveness.
Georgia initiated rate cuts in a 2018 law initially set to take effect in 2020. But the law was deferred because of the pandemic. More significant tax cuts were enacted in 2022, transitioning from a progressive tax to a streamlined, flat-rate structure with the single rate phasing down from 5.75 percent in 2023 to 4.99 percent in 2030.
Lower-income families have cause for celebration as well, as less of their income will be subject to taxation. Georgia’s personal exemption will expand from $2,300 for single filers and $3,000 for those married filing jointly (2018) to $12,000 for single filers and $24,000 for those married filing jointly (2030).
A Georgia family earning $100,000 stands to receive an annual tax cut of $1,324 as a result of these reforms, once fully phased in. And the deal could get better, sooner, if lawmakers decide to push for more relief.
Georgia’s tax cuts are emblematic of a broader trend unfolding across the nation wherever robust economic growth is coupled with disciplined state fiscal policies. The combination of economic growth and spending restraint results in budget surpluses, enabling tax cuts that, in turn, fuel further growth.
Georgia’s transition to a streamlined flat tax also aligns with a national trend, with states such as Idaho, Arizona, Iowa, and Mississippi joining the flat-tax movement in 2022. These states, along with nine other states that already have flat taxes and nine more with no income tax at all, set a precedent that more states will follow.
A flat tax places all taxpayers in the same boat, benefiting everyone when rates decrease and affecting everyone when rates rise. This stands in stark contrast to progressive taxation in states such as California and New York, where creative lawmakers can always conjure up some group that isn’t paying their “fair share.”
Tax cuts are a tangible result of fiscal discipline. When industrious Georgians produce more while the state government exercises restraint, the growing state economy produces surplus tax revenue. Lawmakers can then leverage this economic growth to drive down tax rates, perpetuating a virtuous cycle of surpluses, rate cuts, and economic growth.
Georgia’s virtuous cycle challenges the outdated claim that conservatives believe tax cuts pay for themselves through increased economic growth. While tax cuts do spur economic growth, this growth alone is insufficient to cover the cost of tax reductions.
Well-run states show that economic growth and spending restraint are the prerequisites, with tax cuts being the outcome. Georgia’s robust growth and fiscal restraint have yielded a surplus of $5.3 billion in 2022.
This contrast emphasizes why the federal government struggles to sustain tax cuts — it grapples with an inability to restrain spending. Despite federal revenues never exceeding 20 percent of GDP in American history, federal spending has surpassed 20 percent of GDP in 13 of the last 15 years.
Consequently, tax hikes become the tangible outcome of federal fiscal mismanagement. Tax relief from the 2017 Tax Cuts and Jobs Act is phasing out of federal law, and inflation is acting as a hidden tax eroding Americans’ savings.
Georgia’s leadership demonstrates an alternative path, showcasing that tax relief and a streamlined tax structure are achievable when economic growth aligns with fiscal restraint. States comprehend this truism, and perhaps, someday, even the federal government will learn this valuable lesson.