Georgia Tax Reform: Details & Analysis
On April 18, Georgia Governor Brian Kemp (R) signed several bills into law that will make the state’s 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.
code more structurally sound. The two most significant amendments lower the flat 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 and align the corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax.
rate with the individual income tax rate.
Individual Income Tax Reduction
H.B. 1015 (Act 378) lowers the flat individual income tax rate for 2024 from 5.49 percent to 5.39 percent. The bill also accelerates the speed of future individual income tax rate reductions, with the possibility that the rate could now reach the target of 4.99 percent by 2028 instead of 2029.
The schedule shown above can, however, be delayed (by one year at a time) under three conditions: (1) if the governor’s revenue estimate for the next fiscal year is not at least 3 percent above the respective estimate for the present fiscal year, (2) if the net revenue collection in the prior fiscal year was not higher than in each of the preceding three fiscal years, or (3) if the amount of the Revenue Shortfall Reserve is not sufficient to cover a projected decrease in state revenue.
This policy is incremental and relatively conservative, aiming to prevent revenue shortfalls that might result from reducing the individual income tax rate. However, other states are not standing still; they are actively reducing individual income taxes. Even if Georgia achieves its target in 2028, it will likely only have the 17th lowest individual income tax rate in the nation (currently the 19th lowest), without considering potential changes in other states. Among its neighbors, Georgia’s rate is the second highest after South Carolina (currently at 6.3 percent).
Matching the Corporate Income Tax Rate with the Individual Income Tax Rate
H.B. 1023 (Act 376) aligns Georgia’s corporate income tax rate with the individual income tax rate, effective this year. Consequently, this year’s corporate income tax rate in the state will be 5.39 percent instead of 5.75 percent. With this policy change, Georgia expands the ranks of states where individual and corporate income tax rates are equal. This group includes Colorado (both tax rates at 4.4 percent), Idaho (5.9 percent), Nebraska (5.84 percent), New Mexico (5.9 percent), and Utah (4.65 percent). Such a policy satisfies the principle of neutrality, as business decisions and the choice of the organizational form of a business become less dependent on tax policy considerations when individual and corporate income tax rates do not differ.
Other Tax Changes
H.B. 581 (Act 379), signed by Governor Kemp along with the bills mentioned above, allows counties to limit the growth of property values to the inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power.
rate (this provision is subject to a constitutional amendment) and institutes an additional local option sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding.
of up to 1 percent for local governments to pay for the property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services.
relief measure, effective January 1, 2025. Also, the bill imposes a stricter limit on the combined local sales and use tax rate: the general rate should not exceed 2 percent, while specific rates for educational purposes (1 percent), transportation purposes (up to 1 percent), and property tax relief (up to 1 percent) are authorized in addition to the general rate.
A cap on assessment limits, while well-intentioned, creates significant inequities over time and distorts property markets. Levy limits, which roll back millages (rates) in response to rising property values rather than suppressing valuations—benefitting long-time owners at the expense of newer ones and locking people into their existing homes—would have been a far superior approach to legitimate concerns about rising property taxes.
H.B. 1019, which was sent to the governor in early April and is still subject to a voter referendum, would double the statewide homestead exemption from $2,000 to $4,000 for owner-occupied houses, the first increase in more than four decades.
H.B. 808, passed by both chambers but not yet signed by the governor, would increase the tangible personal property de minimis exemption from $7,500 to $20,000. This is a positive development, but the amount of the exemption is still much lower than in some states that recently modified their personal property tax regimes. For instance, Arizona, Colorado, Idaho, Indiana, Michigan, Montana, and Rhode Island all have exemptions of $50,000 or more.
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