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Analysis: Is eliminating Georgia’s income tax feasible?

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(The Center Square) — While Georgians watch their income tax obligations decrease, could state leaders eliminate the burden altogether?

“Georgia currently receives about half of its annual revenue from the income tax, and the vast majority of that comes from the personal income tax,” Kyle Wingfield, Georgia Public Policy Foundation’s president and CEO, told The Center Square. “If we assume the state isn’t going to cut half of its budget, Georgians would most likely see a sizable increase in sales taxes — by adding the sales tax to things like services, groceries and other exempted items and/or by increasing the sales tax rate on all taxed items.

“The Georgia Public Policy Foundation previously published a study in 2021 showing that the personal income tax rate could be cut to 3% by applying the sales tax to a wide variety of services; it’s unclear how much the study’s assumptions might have changed since then due to significant inflation, and we did not study how much the sales tax rate might have to be increased in order to eliminate the income tax altogether,” Wingfield added.

In April, Republican Gov. Brian Kemp signed a series of tax bills, including a measure to speed up a decrease in the state’s personal income tax rate. House Bill 1015 lowers the individual income tax rate from 5.49% to 5.39% for the tax years starting Jan. 1, 2024. It decreases the rate by 0.1% annually starting Jan. 1, 2025, until it reaches 4.99%.

During May’s Republican primary, roughly 64.6% of voters cast ballots in favor of a question asking whether the legislature should enact the FairTax, replacing the state income and state sales taxes with a consumption tax equal to current state funding. It would not tax legal citizens or families up to the poverty level of spending.

An analysis from The Buckeye Institute, a Columbus, Ohio-based think tank, found an incremental personal income tax cut to 3.99% by 2030 would generate more jobs and economic growth.

“A state’s tax code should be simple and transparent, neutral (minimal impact on people’s decisions), and predictable,” Tony West, state director of Americans for Prosperity, told The Center Square via email. “There are many approaches to tax reform—the fair tax included—that could be characterized by these principles. What’s most important for any major reform is that taxpayer dollars are used wisely, and no more is collected than necessary to perform the basic functions of government.”

Lt. Governor Burt Jones has been a proponent of eliminating the Peach State’s income tax. If Georgia moved to a FairTax or eliminated its state income tax, where would taxpayers expect to pay more, presuming the state would continue to collect the same amount of taxes and fees?

“I’ve long advocated for phasing out the state income tax in Georgia and believe it’s the best way to keep Georgia pro-business and pro-growth and maintain our competitive edge with surrounding states,” Jones, a Republican, said in a statement to The Center Square. “Cutting taxes spurs economic growth, creating new revenues for the state. These conservative, pro-growth policies for Georgia families, work for Georgia businesses, and work for Georgia’s budget.”