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Georgia House Passes Single-Rate Income Tax Bill

2 min readBy: Jared Walczak, Morgan Scarboro

On Wednesday, the Georgia House of Representatives voted overwhelmingly to adopt legislation converting the state’s current graduated-rate individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. into a single-rate taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. . Currently, Georgia imposes six tax rates, maxing out at 6 percent above $7,000 in taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income. —which of course means that nearly all working Georgians have at least some of their income subject to the top marginal tax rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. . The legislation which cleared the House, HB 329, replaces the six brackets and rates with a single 5.4 percent rate, with an earned income tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. designed to retain or even enhance tax code progressivity for many low- and middle-income Georgians.

Last year, the Senate passed similar legislation that also lowered the income tax to a flat 5.4 percent, though that legislation failed to pass the House. Because last year’s tax reform package was a so-called “strike-all” amendment to an orphaned House bill, it complied with the constitution’s origination clause, which requires revenue measures to originate in the lower chamber. However, members of the House may have felt that it violated the spirit, if not the letter, of the provision, and considering the proposal so late in session may have further complicated its chances. Given the success of that measure in the Senate, though, there is reason to believe that HB 329 might be favorably received there. Should it land on Governor Nathan Deal’s desk this year, its fate is uncertain.

Georgia public officials are rightly zealous in the defense of the state’s AAA bond rating. The state is one of only nine to earn the highest grade from all three major ratings agencies, and there has long been concern about “rocking the boat.” Among the other eight states with across-the-board AAA ratings, though, are North Carolina, which adopted comprehensive tax reform in 2013; Utah, which overhauled its tax code in 2006; Texas, which foregoes both individual and corporate income taxes; and Tennessee, which foregoes a wage income tax and has begun phasing out its tax on interest and dividend income.

Ratings agencies emphasize stable revenue streams, conservative fiscal management, positive fund balances, competitive regulatory environments, moderate debt burdens, and economic diversity—and responsible tax reform can often be part of that equation.