Introduction
When Georgia enacted the Tax Reduction and Reform Act of 2022 (House Bill 1437), it began the hard work of fixing an outdated, uncompetitive tax code. The law simplified five income tax brackets into a flat 5.49 percent tax for all earners, eliminated federal tax deductions, and raised the standard state deductions for single and married filers. Those are positive reforms that take significant steps in the right direction. But to compete more effectively with other low- and no-tax regimes in North Carolina, South Carolina, Tennessee, and Florida, there is more work for Georgia to do. House Bill 1437 includes revenue triggers, for example, that will reduce the 5.49 percent flat tax to 4.99 percent by 2030—but those revenue targets must be reached. And the state’s tax code still includes unnecessary and expensive tax credits that can and should be eliminated to allow Georgia to responsibly lower its flat-tax rate even further.
Competitive state tax codes have become increasingly important as high-skilled, high-income earners adapt to a post-pandemic “remote work” environment. Because many jobs may now be done from virtually anywhere in the country, workers are paying more attention to state and local tax regimes and the potential for local and regional economic growth. Migration data from 2021-2023 show that high-income earners have moved to states with lower income taxes—and with the third highest state income tax in the region, Georgia looks unlikely to continue to attract or retain relocating workers without more competitive tax reforms. But the state’s budget surplus and reserve funds create economic and legislative flexibility to phase in sustainable tax improvements that will keep more money in the private sector to foster more growth and investment.
Ideally, to help maximize growth, tax codes should be simple and transparent with low rates and broad bases. Governor Brian Kemp and the Georgia legislature are right to pursue tax cuts and other reforms that meet those objectives. To assist that effort, The Buckeye Institute modeled four tax reform scenarios designed to spur even more economic growth: (1) gradually reducing the state income tax to 3.99 percent by 2030; (2) eliminating the corporate income tax over five years; (3) gradually cutting income taxes by $5 billion over five years; and (4) cutting personal income taxes by $500 million paired with a one-for-one income tax expenditure elimination. Three of the four scenarios yield strong economic growth, increased private sector investment, higher consumer spending, and more jobs.
Modeling Tax Reforms in Georgia
Scenario 1: Incremental Personal Income Tax Cut
Scenario 1 models a phased-in personal income tax cut that reduces the current 5.49 percent rate incrementally until reaching 3.99 percent in 2030, as follows: 5.19 percent in 2024; 4.99 percent in 2025; 4.79 percent in 2026; 4.59 percent in 2027; 4.39 percent in 2028; 4.19 percent in 2029; and 3.99 percent in 2030. These tax cuts will increase Georgia’s gross domestic product (GDP) by $620 million (2023 dollars), boost investment by $360 million, and spur consumer spending by $170 million in 2024. (See Table I.) By 2030, economic growth will rise $5.10 billion, investment $3.27 billion, and consumer spending $1.43 billion. Additionally, Georgia will add 2,000 jobs in 2024 and 16,000 jobs by 2030.
| Table I. Personal Income Tax Cut Phase-In (2023 Dollars) | ||||||
| Baseline | ||||||
| Tax Rate | Year | GDP | Employment | Tax Revenue | Consumption | Investment |
| 5.49% | 2024 | $794,073 | 5,087 | $33,496 | $504,285 | $203,267 |
| 5.39% | 2025 | $818,605 | 5,132 | $34,333 | $513,459 | $220,123 |
| 5.29% | 2026 | $841,900 | 5,166 | $35,192 | $523,445 | $239,301 |
| 5.19% | 2027 | $864,470 | 5,195 | $36,071 | $534,819 | $257,366 |
| 5.09% | 2028 | $884,529 | 5,221 | $36,973 | $546,206 | $271,879 |
| 4.99% | 2029 | $903,779 | 5,242 | $37,898 | $557,723 | $284,434 |
| 4.99% | 2030 | $923,076 | 5,261 | $38,845 | $569,896 | $296,514 |
| Difference from Baseline | ||||||
| Tax Rate | Year | GDP | Employment | Tax Revenue | Consumption | Investment |
| 5.19% | 2024 | $620 | 2 | ($600) | $170 | $360 |
| 4.99% | 2025 | $1,290 | 5 | ($1,240) | $360 | $720 |
| 4.79% | 2026 | $2,000 | 7 | ($1,900) | $550 | $1,150 |
| 4.59% | 2027 | $2,740 | 9 | ($2,610) | $750 | $1,630 |
| 4.39% | 2028 | $3,500 | 11 | ($3,350) | $970 | $2,150 |
| 4.19% | 2029 | $4,280 | 14 | ($4,120) | $1,190 | $2,690 |
| 3.99% | 2030 | $5,100 | 16 | ($4,940) | $1,430 | $3,270 |
Scenario 2: Eliminate Corporate Income Tax Over 5 Years
Scenario 2 models gradually eliminating Georgia’s corporate income tax over five years, as follows: 4.60 percent in 2024; 3.45 percent in 2025; 2.30 percent in 2026; and 1.15 percent in 2027; with full elimination in 2028. These corporate tax cuts will increase the state GDP by $970 million (2023 dollars); investment by $730 million; and consumer spending by $40 million in 2024. (See Table II.) By 2028, when the corporate tax is eliminated, GDP will rise by $5.47 billion; investment by $4.40 billion; and consumer spending by $270 million. Additionally, Georgia will add 2,000 jobs in 2024, and 10,000 jobs by 2028.
| Table II. Eliminate Corporate Income Tax Over 5 Years (2023 Dollars) | ||||||
| Baseline | ||||||
| Tax Rate | Year | GDP | Employment | Tax Revenue | Consumption | Investment |
| 5.75% | 2024 | $794,073 | 5,087 | $33,496 | $504,285 | $203,267 |
| 5.75% | 2025 | $818,605 | 5,132 | $34,333 | $513,459 | $220,123 |
| 5.75% | 2026 | $841,900 | 5,166 | $35,192 | $523,445 | $239,301 |
| 5.75% | 2027 | $864,470 | 5,195 | $36,071 | $534,819 | $257,366 |
| 5.75% | 2028 | $884,529 | 5,221 | $36,973 | $546,206 | $271,879 |
| Difference from Baseline | ||||||
| Tax Rate | Year | GDP | Employment | Tax Revenue | Consumption | Investment |
| 4.60% | 2024 | $970 | 2 | ($470) | $40 | $730 |
| 3.45% | 2025 | $2,020 | 4 | ($960) | $90 | $1,480 |
| 2.30% | 2026 | $3,130 | 6 | ($1,480) | $140 | $2,350 |
| 1.15% | 2027 | $4,280 | 8 | ($2,030) | $200 | $3,340 |
| 0.00% | 2028 | $5,470 | 10 | ($2,600) | $270 | $4,400 |
Scenario 3: $5 Billion Personal Income Tax Cut Over 5 Years
Scenario 3 models a personal income tax cut that reduces taxes by $1 billion per year until the roughly $5 billion tax cut is completely phased-in by 2028. Over that period, personal income tax rates will be as follows: 5.15 percent in 2024; 4.80 percent in 2025; 4.45 percent in 2026; 4.10 percent in 2027; and 3.75 percent in 2028. Inflation-adjusted tax revenue is projected to grow over the next five years, so personal income tax cuts will keep even more money in taxpayers’ pockets, further increasing taxpayer savings and economic growth. Thus, the actual size of the total tax cut will likely exceed $5 billion by 2028. These tax cuts will increase state GDP by $990 million (2023 dollars); investment by $570 million; and consumer spending by $280 million in 2024. (See Table III.) By 2028, Georgia’s GDP will rise by $5.58 billion; investment by $3.43 billion; and consumer spending by $1.55 billion. Additionally, Georgia will add 4,000 jobs in 2024, and 18,000 jobs in 2028.
| Table III. Buying Down Personal Income Tax Cut Over 5 Year (2023 Dollars) | ||||||
| Baseline | ||||||
| Tax Rate | Year | GDP | Employment | Tax Revenue | Consumption | Investment |
| 5.49% | 2024 | $794,073 | 5,087 | $33,496 | $504,285 | $203,267 |
| 5.39% | 2025 | $818,605 | 5,132 | $34,333 | $513,459 | $220,123 |
| 5.29% | 2026 | $841,900 | 5,166 | $35,192 | $523,445 | $239,301 |
| 5.19% | 2027 | $864,470 | 5,195 | $36,071 | $534,819 | $257,366 |
| 5.09% | 2028 | $884,529 | 5,221 | $36,973 | $546,206 | $271,879 |
| Difference from Baseline | ||||||
| Tax Rate | Year | GDP | Employment | Tax Revenue | Consumption | Investment |
| 5.15% | 2024 | $990 | 4 | ($960) | $280 | $570 |
| 4.80% | 2025 | $2,060 | 7 | ($1,980) | $570 | $1,150 |
| 4.45% | 2026 | $3,190 | 11 | ($3,050) | $880 | $1,830 |
| 4.10% | 2027 | $4,370 | 14 | ($4,180) | $1,200 | $2,610 |
| 3.75% | 2028 | $5,580 | 18 | ($5,380) | $1,550 | $3,430 |
Scenario 4: $500 Million Personal Income Rate Reduction with Eliminated Tax Credits
Scenario 4 models a revenue-neutral, $500 million tax change that reduces the personal income rate everyone pays and uses a dollar-for-dollar elimination of tax credits so there is no change in overall tax revenue. Because the lower tax rates are fully offset by the eliminated credits and no extra money returns to taxpayers, there is no additional economic growth, investment, consumer spending, or job gains. (See Table IV.)
| Table IV. $500 Million Personal Income Tax Cut with One-for-One Personal Income Tax Expenditure Elimination (2023 Dollars) | ||||||
| Baseline | ||||||
| Tax Rate | Year | GDP | Employment | Tax Revenue | Consumption | Investment |
| 5.49% | 2024 | $794,073 | 5,087 | $33,496 | $504,285 | $203,267 |
| 5.39% | 2025 | $818,605 | 5,132 | $34,333 | $513,459 | $220,123 |
| 5.29% | 2026 | $841,900 | 5,166 | $35,192 | $523,445 | $239,301 |
| 5.19% | 2027 | $864,470 | 5,195 | $36,071 | $534,819 | $257,366 |
| 5.09% | 2028 | $884,529 | 5,221 | $36,973 | $546,206 | $271,879 |
| 4.99% | 2029 | $903,779 | 5,242 | $37,898 | $557,723 | $284,434 |
| 4.99% | 2030 | $923,076 | 5,261 | $38,845 | $569,896 | $296,514 |
| Difference from Baseline | ||||||
| Tax Rate | Year | GDP | Employment | Tax Revenue | Consumption | Investment |
| 5.29% | 2024 | $0 | 0 | $0 | $0 | $0 |
| 5.19% | 2025 | $0 | 0 | $0 | $0 | $0 |
| 5.09% | 2026 | $0 | 0 | $0 | $0 | $0 |
| 4.99% | 2027 | $0 | 0 | $0 | $0 | $0 |
| 4.89% | 2028 | $0 | 0 | $0 | $0 | $0 |
| 4.79% | 2029 | $0 | 0 | $0 | $0 | $0 |
| 4.79% | 2030 | $0 | 0 | $0 | $0 | $0 |
Conclusion
Georgia must continue to reform its state tax policies if it wants to compete economically in a low-tax region of the country. Strong economic performance and an influx of federal dollars during the pandemic produced robust surpluses that should be returned to Georgia’s taxpayers as policymakers look for ways to build upon the state’s 2022 tax reforms. Tax codes should be transparent and simple, with low rates and broad bases across the board. Georgia cannot afford a high-income tax rate relative to regional neighbors. Simplifying the state income tax with a flat tax has proven a solid start, but incrementally reducing the tax rate below four percent will also help attract and keep workers and businesses. Investments will rise, jobs will be added, and Georgia’s GDP will grow by more than $5 billion. Modelled scenarios bear this out and offer state policymakers viable options for a more sustainable, competitive tax code.
About The Authors
Rea S. Hederman Jr. is executive director of the Economic Research Center and vice president of policy at The Buckeye Institute. In this role, Hederman oversees Buckeye’s research and policy output.
Zachary D. Cady is an associate economist with the Economic Research Center at The Buckeye Institute. In this position, Cady produces original research that looks at and analyzes the impact of state and federal policies on peoples’ lives and the economy.
Trevor W. Lewis is an economic research analyst with the Economic Research Center at The Buckeye Institute, where he works with a team of economic experts to research economic and tax policies that will help Ohio and other states implement policies to grow and strengthen their economies.