The story of the 2020 legislative session will be the budget. Gov. Brian Kemp ordered some agencies to cut their budgets while others expect increases, the normal rejiggering of priorities under a new governor.
Along with those swings of hundreds of millions of dollars, state revenues have been roughly flat during the first several months of the current fiscal year. Now we are hearing tales of woe about the cuts legislators made in 2018 to the state’s top income-tax rate. The “cautionary tale” of Kansas even is being thrown around.
Don’t believe the hype.
For the uninitiated, Kansas in 2012 also launched a series of income-tax rate cuts. There end the similarities with what Georgia did in 2018.
Start with the differences in why each state chose to cut its tax rate. Georgia officials in 2018 anticipated a surge in revenue from the federal Tax Cuts and Jobs Act of 2017, because it eliminated a number of deductions Georgia had adopted but didn’t change the state’s tax rates. Legislators response was to expand the standard deduction in 2018, lower the top income-tax rate of 6 percent to 5.75 percent in 2019, and schedule a further cut to 5.5 percent in 2020.
Kansas, on the other hand, sought to boost its economy by cutting taxes. The idea was not to offset an expected spike in revenues, but to generate economic growth that would, some predicted at the time, lead to higher revenues.
So while Georgia was trying to keep revenues mostly flat – with a small projected increase in 2018 and 2019, and a modest dip starting in 2020 that was projected to level off after a few years – Kansas wanted to cut revenues with the expectation that subsequent growth would make up for it.
Those are very different aims, and the policy designs were quite different as a result. Consider the tax structures before and after each state’s rate cuts. Georgia has six tax brackets, the highest of which kicks in at just $7,000 of taxable income for an individual or $10,000 for a married couple.
In Kansas, the lowest rate before its tax reform applied to the first $15,000 of taxable income for an individual or $30,000 for a married couple, with two more brackets on top of that. All of this means Georgians begin paying the top tax rate at much lower levels of income. A change in the top marginal tax rate here thus affects a far larger proportion of taxpayers – although the top rate in Kansas still hits people who are squarely in the middle class.
But perhaps the biggest difference is how the rates were cut. Georgia’s top rate fell by less than one-twentieth (from 6 percent to 5.75 percent) between 2018 and 2019, with a similar cut to come. Together, they would represent a decrease of about one-twelfth.
In Kansas, however, the top rate fell by almost one-fourth in just one year: from 6.45 percent to 4.9 percent. Then it kept falling by a much smaller amount year over year, until the reforms were scrapped and tax rates raised. The bottom rate also fell, by about one-seventh, and the middle bracket was eliminated altogether.
In other words, the cuts in Kansas were much, much deeper than the ones here.
It’s worth asking why Georgia’s revenues haven’t moved as was predicted two years ago. Perhaps the federal changes didn’t have as large an impact as expected; perhaps the state changes had a larger impact. Our state has also suffered two substantial blows economically in the meantime: to agricultural production, following Hurricane Michael’s devastation in South Georgia, and to trade, due to the gyrations of U.S. policy toward China and other countries. Both challenges have also slowed the transportation and logistics industries that are more important to our economy than to some other states’.
So let’s have that discussion, but without invoking another state’s missteps that don’t reflect the policies enacted here.
• Kyle Wingfield is president and CEO of the Georgia Public Policy Foundation: www.georgiapolicy.org.