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GOOD NEWS! The recession’s over, so it’s time to cut taxes again
By ALAN ESSIG/Georgia Budget and Policy Institute
This just in: There will never be a recession in Georgia again. After we weather this current economic storm, good days will be here again and never leave.
That’s the stance legislative leadership took today by offering amendments to House Bill 1055 that carve additional holes into our revenue system. The amendments eliminate the state income tax on retirement income for taxpayers age 65 and over ($150 million), as well as the “quarter-mill” state property tax ($95 million; half of exemption goes to residential owners and half to non-residential owners).
Seniors already enjoy an exclusion from state income taxes on $35,000 of their retirement income ($70,000 for couples) and all of their Social Security Income. Since the vast majority of seniors are already excluded from state income taxes, this new tax cut is overwhelmingly for the wealthiest seniors (those in the top 10 percent of incomes).
With these existing exclusions, personal exemptions, and standard deductions for elderly taxpayers, an elderly couple can already have up to $100,000 in income without paying a dollar in state income taxes. (Read our analysis of a similar proposal from 2007.)
It does not stop here. Just as the Legislature is lamenting the lack of state revenues during this fiscal crisis and urging department heads not to cut critical frontline workers, it has passed a total of $600 million in permanent tax cuts (including permanent tax cuts in HB 1023). Similar to this new senior tax break amendment, the capital gains tax cut in HB 1023 goes overwhelmingly to those with the top 5 percent of incomes.
In short, the Legislature just passed more than a half a billion dollars in tax cuts for the wealthiest Georgians.
We must stop this seesaw act of temporary tax increases and permanent tax cuts during recessions. It is fiscally irresponsible. It only sets us up for problems in the inevitable next recession. With two recessions in a decade, it would seem obvious to plan for another for some time in the future.
Based on the current regressive state and local tax system, a $600 million tax cut should be debated with an eye toward making taxes more proportional. These tax cuts in HB 1055 and HB 1023 make the Georgia tax system more regressive. Now HB 1055 moves to the governor for signature or veto.
Note: House Bill 1055 passed the House several weeks ago with $96 million in updated user fees, helping to close a portion of the $5 billion deficit. The Senate passed the bill with minor changes, and sent it back to the House today. The House amended and passed it with the original fee increases, senior income tax break, state property tax elimination, and three-year hospital fee (House Bill 307), then immediately transmitted the bill to the Senate. The Senate likewise passed HB 1055. (View the current distribution of Georgia’s state and local taxes.)
Alan Essig is executive director of the Georgia Budget and Policy Institute, an independent, nonpartisan, nonprofit organization that studies fiscal policies in state government.