Deal’s new plan would cut top income tax rate

Georgia Gov. Nathan Deal and legislative leaders have agreed to cut the top state income tax rate to help eliminate the revenue windfall the state anticipates from federal tax changes approved by Congress in December.

The proposal, which is expected to quickly work its way through the General Assembly, not only would eliminate the federal bill windfall, but cut state income taxes an additional $1 billion over the next five years.

Backers called it the largest Georgia income tax cut in history.

The agreement, announced Tuesday by Deal, House Speaker David Ralston and Lt. Gov. Casey Cagle, the Senate’s president,

would cut the top state income tax rate — the rate most Georgians pay on a majority of their income — from 6 percent to 5.75 percent starting next year.

The rate would be further reduced to 5.5 percent in 2020 if the General Assembly gives its OK, likely during next year’s session.

In addition, the proposal would double the standard deduction for Georgians. For married couples filing joint returns, the deduction would go from $3,000 to $6,000.

The initial aim of the measure is to wipe out what was projected to be a $4.7 billion tax increase over the next five years as a result of changes made in federal tax law.

“This bill keeps more of taxpayers’ hard-earned money in their pockets,” Deal said.

Cagle, who is running this year to replace Deal, said, “This historic tax cut lowers Georgia’s income tax rate for the first time ever, returning significant savings to millions of families across the state.

“More importantly, this framework sets the stage for continued reductions — building on the Trump administration’s tax reform to allow Georgians to keep more of what they earn.”

Deal staffers said they are expecting the plan to be before the state House for a vote by the end of the week.

The deal came less than a week after the governor’s first plan got a frosty reception from House members.

The Atlanta Journal Constitution initially reported last month that the state estimated it would take in about $3.6 billion more from income taxes over the next five years because of the federal tax law. The figure later rose to $4.7 billion.

The federal law produces a potential windfall because it limits or eliminates some of the deductions Georgians have used when figuring their state taxes in the past and made it far more likely ratepayers will use the standard federal deduction, rather than lowering their state taxable income using itemized deductions.

So while many Georgians may pay less in federal taxes, at least some could wind up with bigger state tax bills unless lawmakers make some changes in the tax code as well. That’s what Deal’s proposal aims to do.

Deal initially said he wanted lawmakers to wait until the state’s 2019 legislative session to figure out how to address the windfall because the state can now only estimate the impact of the federal law. But Deal changed his mind after lawmakers — most of whom are either running for higher office or seeking re-election this year — began calling for tax cuts.

So he proposed House Bill 918, which would have cut the estimated windfall to $1.15 billion over the five years.

House tax writers quickly said the proposal was inadequate, and several voiced support for cutting the top income tax rate.

“I think we have a very unique opportunity to lower [state income tax] rates,” said state Rep. Sam Teasley, R-Marietta, a member of the House Ways and Means Committee.

Teasley suggested, as a starting point, House Bill 329, which passed the chamber last year and lowered the top state income tax rate from 6 percent to 5.4 percent.

The Deal administration looked at the effect of lowering the rate to 5.5 percent and found it would more than eliminate the windfall over the next three years.

State income taxes are the single biggest source of revenue for the state, and officials in the Deal administration initially said the governor would likely fight any effort to cut the rate and veto any bill that contained rate cuts.

But lawmakers are squeamish about the prospects of running for re-election this year after passing a plan that doesn’t wipe out the windfall because they could be accused of raising state taxes. Leaders in both chambers called for a cut in the income tax rate, and Deal said he was convinced it was doable without busting the state budget.

Besides the rate cut and increased deduction, House Bill 918 will include a provision in earlier administration legislation to exempt jet fuel from state and most local sales taxes.

Doing so would cut airline and cargo fleet sales taxes by more than $50 million a year. Delta Air Lines and Southwest Airlines have both had lobbyists at the statehouse pushing for the tax break, which they say will help Atlanta better compete with other major hub airports that don’t charge sales taxes on jet fuel.

Clayton County officials, including the school superintendent, had voiced opposition to the exemption because they would lose millions of dollars in sales tax revenue.