The “More Take Home Pay Act”, introduced this week, House Bill 445 by Rep. John Carson, would create a single income tax rate of 4%, down from the current 6%, increase the state sales tax from 4% to 5%, and eliminate from the tax code of a number of current exemptions and would bring back the grocery tax over a three year phase in period, while eliminating certain tax credits.

HB 445 seeks to reform Georgia’s tax system, allowing taxpayers to keep more of their  income and preserving Georgia’s status as the number one state to do business. We will see a substitute next week that will include the lowering of the state coporate income tax to 4% in addition to state income tax.

Under the proposed bill, families could keep more of their income by lowering the personal and business tax rate.  Middle-class Georgia households making $29,500 or more will see an increase in take home pay.  Further, tiered income tax brackets and certain tax loopholes will be eliminated, whereas income tax deductions and exemptions will remain unaffected.

Encouraging job growth and promoting fairness in the tax system by broadening the tax base serves is a purpose of the bill.  The bill replaces revenue by shifting to a broader consumption-based model.  To ensure responsible budgeting and revenue neutrality, the Act proposes a low-tax sales tax increase and additional low rates on stable and predictable goods.  Moreover, certain taxes, like franchise fees, that discourage business growth in the current version would be eliminated.

Highlights of the bill include:

  • Households making $29,500 or more will see an increase in take home pay;
  • Households bringing in $48,000 (the median Georgia household income) will keep $400 extra annually;
  • Reduces income tax rate to 4% over a period of three years (2016: 4.5%, 2017: 4.25%, 2018: 4.0%);
  • Keeps itemized deductions and personal tax exemptions;
  • Raises general state sales tax by 1% on January 1, 2017, which will raise the current tax of 4% to 5%;
  • Phases in a grocery state sales tax over a four year period (2016: 0%, 2017: 3%, 2018: 4%, 2019: 5%) with each 1% contributing $130 million to the state budget.
  • Food stamp purchases will be exempt from the grocery tax;
  • Implements a flat communications service tax beginning on January 1, 2016: state telecom: 5%, state cable: 5%, state direct broadcast satellite (DBS): 7%, local telecom: 1.25%, school telecom: 0.75%, local cable: 2%;
  • Increase the current cigarette excise tax over three years (2017: $0.45, 2018: $0.55, 2019: $0.65)

According to the Tax Foundation, Georgia’s individual income tax system is divided into six brackets with a top tax rate of 6% – ranking Georgia as the 23rd highest among states levying an individual income tax in the Untied States.  Georgia’s corporate income tax is also a flat 6% tax rate, the 13th lowest among states levying a corporate income tax.  Several states have already eliminated their state income taxes.  In FY 2013, seven states – including Florida and Texas – had completely eliminated their individual income tax, while Tennessee and New Hampshire have chosen only to tax interest and dividend income but not to tax wage income.

On the corporate income tax front, three states – Nevada, Washington, and Wyoming – have eliminated corporate income tax, and Texas’s margins tax is not classified as corporate tax revenue.  Mark Rider, associate professor of economics at Georgia State University, said that eleven other states are considering similar tax reforms shifting away from income tax towards more consumption tax.  One of those states is North Carolina – a competitor of Georgia’s which reduced its state personal income tax rate last summer.

Reducing the income tax in Georgia can help bolster the state’s competitiveness in attracting and keeping businesses and individuals. The legislation will begin a conversation that will likely continue into the 2016 Session.  The Council will provide input into the legislation throughout the process to ensure it encourages job growth and development, while reforming our current taxation system.