I was in kindergarten when I got my first allowance – complete with a contract between my parents and me. Among its wise provisions was that I couldn’t spend a single week’s allowance all at once, but if I saved for multiple weeks I could spend all my money on one item.
Even in 1984 one could only buy so much with my weekly stipend – one whole U.S. dollar – so the provision was somewhat superfluous. Still, it taught me not to let money “burn a hole in my pocket.” Over the years I saved up to buy toys, video games, eventually a mountain bike.
The state of Georgia doesn’t talk about $1 unless the words “million” or “billion” follow it. But the same principle applies: State leaders have spent tax dollars cautiously, and they’ve accumulated quite the nest egg on behalf of the taxpayers.
When fiscal 2024 ended back on June 30, Georgia had more money in the bank than ever before. A recent report by the State Accounting Office showed the official rainy-day fund grew to almost $5.5 billion, lottery reserves surpassed $2.4 billion, and the undesignated surplus reached an incredible $11 billion.
That growth happened even though tax revenues were slightly lower than the year before. Spending went up but, as in other recent years, remained substantially lower than revenues.
That prudence presents the opportunity for a big-ticket tax reform.
Georgia’s biggest competitive disadvantage compared to other states is probably its out-of-control legal environment.
That’s something legislators ought to address when they return to the Gold Dome in January. But not far behind is our tax code.
Florida and Tennessee charge no personal income tax. North Carolina has steadily chipped away at its personal and corporate income taxes over the past decade-plus, and both are now lower than our rates. Alabama’s personal income tax rate is already below ours, and South Carolina has begun cutting its rate. And that’s just our neighbors.
Georgia has also been in tax-cutting mode. Over the past few years, lawmakers have flattened our personal income tax into a single rate, expanded personal exemptions to the particular benefit of lower-income workers and cut both the personal and corporate tax rates. Georgia’s personal income tax rate now stands at 5.39% and is slated to fall by a tenth of a point per year until it hits 4.99%.
But with $11 billion in the bank above and beyond the official reserves, Georgia can afford to cut further and faster.
Earlier this year, the Georgia Public Policy Foundation and the Buckeye Institute of Ohio published a study illustrating four possible tax reforms. These possibilities include cutting either the personal income tax or the corporate income tax at faster rates than current law provides. Implementing any of them would spur billions of dollars of new economic growth and create thousands of new jobs.
All of them would be easier to implement if lawmakers used some of our $11 billion undesignated surplus to finance the tax cuts. Following the lead of Iowa, a state that has cut taxes aggressively in recent years, Georgia could place the surplus dollars in a “taxpayer relief fund.”
Lawmakers could draw from the taxpayer relief fund to maintain modest spending growth in the face of lower revenues – after all, people continue to flock to Georgia every day, leading to larger expenses for items such as K-12 education.
Or they could use the money to hedge against the possibility of revenues slowing more than expected. Putting at least half of the $11 billion surplus into such a fund would be a good start, and would leave a large chunk of extra funding for needs such as new transportation infrastructure.
Sound fiscal management has brought Georgia to an opportune moment. Seizing on the opportunity to make lasting changes will take Georgia from strength to strength.