This is getting ridiculous.
Once again, state revenues are astoundingly large. The latest figures, for the budget year that ended June 30, show the state took in almost $6.2 billion more than a year earlier, an increase of about 23%. Even accounting for budget increases, the surplus could be as high as $5 billion.
This isn’t funny money. It’s real money from real taxpayers. As state leaders decide what to do next, they’d be wise to act accordingly.
Tax rates haven’t gone up. Instead, earlier this year legislators passed a significant income-tax cut, although it doesn’t take effect until 2024. The motor fuel tax has been suspended for four months. But tax payments can rise anyway: Just ask the many Georgia homeowners who owe more property taxes this year because of soaring property values, even as their local elected officials crow about nominal rate reductions.
What to do?
Big spenders have lots of ideas. Yet, the surplus represents one-time money, while any new or expanded government programs presumably would continue into the future. That would burden tomorrow’s taxpayers.
The state could make one-time capital investments, but that’s not a great use either. First, the state is flooded with other money as well: Another $2.4 billion in COVID-19 relief is en route, along with new federal infrastructure dollars. And all of this may spur more inflation, so the state may overpay if it buys more goods and services now.
Reducing public debt is an option. That would help future taxpayers and especially makes sense if paired with reforms to pensions and other retirement benefits to make them more sustainable. But such reforms are a political minefield, so let’s consider them unlikely.
That brings us to tax cuts.
Normally, this situation would call for one-time cuts: Using one-time money for one-time obligations applies to taxes as well as spending. The state issued refunds of up to $250 for individuals and $500 for married couples earlier this year (less if they owed less in taxes) and there is talk of additional refunds.
But that’s not the best way to handle this surplus. The problem with one-time tax cuts is they don’t change anyone’s incentives to work, save or invest. Georgia has a unique opportunity in this particular moment to use its surplus for sustained tax cuts. Let me explain.
Remember this year’s tax reform? It creates a series of rate cuts and larger exemptions that begin in 2024. So, why not use the current surplus to start the reforms early? We’re talking about a bridge to future tax policy, not changing tax policy for the future.
At an estimated cost of $1 billion per year for the initial slate of cuts, the state easily could afford to start the clock in 2023, or even adjust rates retroactively for 2022 (since this year’s tax filing deadline isn’t until April 2023).
Even more aggressive, the state could use the surplus to eliminate the triggers in the tax-reform bill that, over time, push the tax rate down to a flat 4.99% while increasing personal exemptions. Those changes, when fully implemented, are projected to cost another $1 billion or so per year. Many if not most taxpayers would be better off if the tax reforms went further, sooner, rather than if they received another refund.
For example, a married couple with two children earning the poverty level (less than $28,000) would save $585 over the next three years if the reforms were fully implemented this year. But they would only save $203 from a refund, since that’s how much tax they presently owe. Another example: A family of three earning the state’s median household income (about $61,000) would save $1,615, compared to $500 from a refund.
It’s only because legislators already scheduled these future tax cuts that we can consider using a one-time surplus for continuing cuts. When a rare opportunity like this comes along, it’s worth seizing.
