Georgia could have a flat income tax with a rate of 4 percent — or lower — immediately, according to a new study by Georgia State University. The Tax Reform Council’s final report was missing several numbers, causing conservative and liberal groups to react negatively to the proposal. Conservatives argued that phasing in the tax rate reductions over three years and possibly starting as high as 5 percent, was a massive tax increase. Liberals argued that the tax reduction was not enough to offset sales tax increases on low- and middle-income families and senior citizens.
Now the missing numbers have been filled in. Although the numbers are still not disaggregated, these new estimates include a $2,000 exemption for dependents and low-income tax credits designed to protect low-income families and senior citizens.
Excluding changes in the premium tax, which appear too expensive to consider now, the Georgia State study shows that a 4 percent income tax rate brings in $348 million dollars more than necessary to be revenue neutral. Legislators could use these extra funds to reduce the rates even more and/or address equity concerns.
Most importantly, these new estimate indicate that the rate reduction can take place immediately, with no phase in period. That means the economic stimulus effect of the rate reduction will be immediate as well. As we learned with the Reagan tax cuts, if you phase in rate reduction over a period of years, people tend to wait for the lowest rate, so job creation and economic recovery are delayed. Immediate rate reduction is far more preferable.