Imagine a business owner discounting their best-selling item and seeing hundreds of millions of dollars less in revenue each year, while costs of doing business are on the rise.
Next year, lawmakers will consider a similar move as they vote on legislation that could threaten our state’s ability to remain economically competitive by significantly weakening the state’s main source of funding. This vote comes at a time when Georgia faces both a cloudy economic forecast and critical needs statewide.
Last year, after major federal changes restructured the income tax to largely benefit high-income taxpayers, the state passed legislation to cut the top income tax rate for households and corporations from 6% to 5.75%. The same legislation included an option for lawmakers to further cut the top rate to 5.5% in 2020. If lawmakers approve this second cut, the state would lose $550 million in annual revenue. Of that $550 million, middle-income Georgia households would see a return of about $5 per month, while Georgians earning more than $108,000 per year take home 75% of it.
Some argue that in an election year the tax rate cut is destined to pass. But it may not be a compelling case once Georgians see how little they gain and how much the state gives up. In fact, with cuts to key programs, the rate reduction may feel more like an increase for some.
Essentially, the state would forgo more than half a billion dollars so that the average Georgian could buy the equivalent of a cup of coffee each month, while the top 20% of earners enjoy most of the benefits.
Meanwhile, Gov. Brian Kemp is asking state agencies to cut their budgets by 4% for the current budget year and an additional 6% for 2021. These are the first budget cuts for Georgia agencies since the Great Recession.
Supporters of these budget cuts argue the governor is simply focusing funding on his priorities. Gov. Kemp’s goals include another $2,000 pay raise for all public school teachers and certified employees ($350 million), a health care waiver (more than $150 million) and rural broadband expansion (more than $1 billion). Planning to cut the tax base by $550 million, while looking for revenue through budget cuts seems at odds and may put these critical needs out of reach on all fronts because we may create a long-term budget deficit.
Speaker of the House David Ralston recently said that cutting the budget “will require some difficult decisions regarding service delivery and personnel levels in each state agency.”
He is right. Although Georgia’s budget continues to grow each year, more than 80% of funding in the state budget is determined by formulas designed to keep pace with population growth. In fact, our state — ranked No. 8 in the nation for overall population — ranks No. 50 in growth of spending post-Recession. There is little fat to cut.
In a recent interview with Georgia Recorder, State Rep. Terry England explained that we do not yet know which areas of our already-lean state government will be exempt from budget cuts, adding that there is no way to make meaningful reductions in spending “without really reeling things back that benefit the state consumer.”
There is also increasing economic uncertainty on the horizon. If that continues or worsens, another tax cut — one that will cut Georgia’s main source of revenue by nearly 5% — will create greater challenges for the state to serve Georgians adequately.
Georgia faces some of the highest uninsured rates and worst health care outcomes in the nation. Only three states in the nation have a higher percentage of students who qualify for free- or reduced-price lunch. A recent study ranked Georgia No. 41 overall among best states to raise a family.
Tackling these issues requires investments, not an erosion of our tax base nor budget cuts that may set us further back.