Earlier this week Georgia Governor Sonny Perdue vetoed a bill that would have reduced capital gains taxes and provided businesses with job creation incentives. The bill had originally included a phase-out of the corporate income 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. , but that provision was dropped from the bill before it was approved by the legislature.
The bill would have provided various 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. s to businesses who hired certain unemployed individuals. In addition the bill would have waived certain filling fees for a one year period beginning in July and eliminated the net worth tax on companies permanently after 2010.
The bill would also have allowed businesses and individuals to exclude 25% of their capital gains from income in 2010, and 50% in 2011 and thereafter. Essentially this would cut the capital gains taxA capital gains tax is levied on the profit made from selling an asset and is often in addition to corporate income taxes, frequently resulting in double taxation. These taxes create a bias against saving, leading to a lower level of national income by encouraging present consumption over investment. in half.
This provision would have resembled the traditional treatment of capital gains at the federal level. For many years federal law provided for a 50% exclusion of capital gains while taxing the remaining half at the standard income tax rate. In 1987 the federal government stopped allowing the 50% exclusion, but began applying a preferential rate to capital gains, often at a rate of around half the top 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. rate. Apparently there was a general consensus that returns on investments (i.e. capital gains) should be taxed at a lower rate than wage income in order to encourage investment.
Georgia lawmakers had a similar idea, but it was shot down.
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