Live long enough and the world will bring you the two things we have each been guaranteed: Death and Taxes.
This loathsome pair is nearly equally unpopular. The latter is a necessary evil to fund the many faces and services the government provides that people need or desire.
This of course means that during election years we will often witness Conservatives announce or embark on quests to remove or reduce taxes, while their Liberal/Progressive counterparts detail the damage those tax and revenue reductions will inflict. Here we go again.
The Georgia General Assembly faces two major choices for reducing the tax burden on Georgians. The State Senate and the Lieutenant Governor Burt Jones are championing the reduction and eventual elimination of the state’s personal income tax.
State House Speaker Jon Burns and State House leadership, as well as Governor Brian Kemp’s proposed budgets would phase in relief for property taxes paid on homesteads, single-family homes, over six years. Property and other ad valorem taxes are the primary funding source for county governments and public school systems, along with sales taxes. The income tax is the state’s largest single source of revenue, accounting for roughly 40 percent of the state’s income.
Income Tax Has Been Reduced, Incrementally
Our General Assembly has been consistently reducing Georgia’s income tax rate by a quarter or half percentage each year, for nearly a decade now, down from more than seven percent to now roughly five percent. The Governor’s and State House budget drafts call for further reduction to 4.99 percent, from the current 5.19.
Almost sixty percent of Georgia’s budget is dedicated to public education, paying teachers, administrators and the ancillary employees such as paraprofessionals, school bus drivers, athletic coaches, etc...that provide K-12 public education.
County and municipal school systems primarily use property taxes to fund public education. Income taxes are paid on net income, not gross income. For lower-income households, several million already pay virtually no state income tax because their income falls below the minimum required for taxation.
The State Senate proposal would raise that household income exemption level to $100,000, making that amount tax-free income for each household.
While certainly desirable, funding that revenue reduction would require eliminating numerous existing tax credits, primarily those incentivizing corporations and certain target industries to choose Georgia for their new home, as well as major expansions by existing industries.
Eliminating Income Tax to be funded by eliminating tax credits
The State Senate bill would eliminate job creation tax credits which lured mega-projects, such as the Kia Automotive plant to LaGrange, the Hyundai plant to Bryan County and Ellabell, Georgia, and Rivian to Stanton Springs in Morgan County, roughly an hour east of Atlanta.
The pharmaceutical and technology industries have also followed those tax credits to Georgia, creating thousands of higher paying jobs, particularly in areas where job growth had otherwise long since disappeared. Projects like these as well as their indirect economic impact have helped Georgia become the ‘Best State for Business’ for thirteen consecutive years.
Many factors influence the rising prices of real estate and home ownership. Next year will be my 20th in my current home in Scottdale, Georgia. Our home is comfortable as well as affordable at current income levels. The mortgage ends in a decade, though that’s still a long way off. If my health or current circumstances compelled retirement tomorrow, based upon the current projections of my Social Security income and current assessment increase rates, my property taxes in DeKalb County—even with a generous Homestead Exemption—would soon exceed the monthly mortgage. Currently we are at about half that monthly payment.
Our home’s value is assessed at more than twice its purchase price of a decade ago, and though many improvements have been made since then, absent a lottery win, we won’t be going anywhere else.
Fortunately, my career and income have allowed decent savings and investment opportunities. However, if I were forced to rely solely on SSI income, as many Georgians on fixed incomes are, I likely would have to sell the home within three to five years—with property taxes pricing me out—before retiring the mortgage. And I have already witnessed the same by too many longtime and hard working Georgia residents and retirees.
Home Ownership Is Largest Source of Personal & Family Wealth
The Georgia HOME Act would double the existing state homestead tax exemptions (currently 40 percent of single-family home’s owner occuppied property value) every other year through 2032, moving toward their eventual elimination.
Local governments would have the ability to adjust sales taxes by up to five additional cents, as well as make fee adjustments to make up the funding difference. The proposed Georgia HOME Act would also cap annual income increases for non-homestead properties at 3 percent per year. Budget forecasters estimate the state’s reduced revenue to local governments and school districts at roughly $5-billion per year.
A Clearly Better Choice?
Georgia’s income taxes generate over $16 billion annually, and the wealthy pay a disproportionate share of total income tax revenues. Noting that 60 percent of that would pass through to local school systems at current spending levels, those cuts would be in the range of $8-9 billion at the local level.
Again by this measurement, rolling back homestead property taxes would impact the wallets and household budgets of more Georgians while also having less immediate, negative impacts on local government and public school funding. The HOME Act will require a Constitutional Amendment, as well as a six-year phase-in. The funding plan that allows for incremental adjustments supporting economic growth and enabling visitors to Georgia to contribute more through increased sales taxes seems more broadly supported.
Among the hundreds of bills the Georgia General Assembly considers and potentially passes into law each year, it has only one Constitutional requirement. They must produce a balanced budget. Prudent fiscal management and stewardship have earned Georgia among the best bonded debt ratings in the nation. Moving too quickly to shift or change revenue models may impact that, particularly in the advent of a recession.
These topics are real, serious and potentially taxing matters. I have my preference, but I hope they collectively get the state’s revenue mix right without tanking our public school systems, Georgia’s robust economy, or ongoing job growth.
We may not pay our legislators at all well, but this is serious business where they potentially more than earn their keep.
