No matter which issues dominate the headlines during a legislative session, tax policy remains a hardy perennial. Whether a debate over eliminating the income tax, rising property taxes or special interests fighting for lucrative credits, taxes are always on the table under the Gold Dome. Similarly, no matter the strength of Georgia’s economy, its taxpayers will always judge effective governance at least partly by how their money is spent.
Georgia has seen consistent growth in the past few years in both spending and revenue and finds itself in a unique economic position only a few years removed from the COVID-19 pandemic: While revenue surges aren’t at their 2021 and 2022 levels, Georgia’s budget is still growing. Even though the state is spending more and more money each year, spending still lags behind revenues.
While the debate continues over how to maintain and capitalize on this strong financial position at the state level, one of the most consequential policy decisions for Georgians remains their local tax burden. Last year, the General Assembly passed House Bill 581, which provided a statewide floating homestead exemption that limits annual assessment increases on homestead properties to the rate of inflation. Cities and counties, but not school boards, could offset those revenues with a local option sales tax, or FLOST, of up to 1%. This bill’s ratification required a constitutional amendment on Georgia’s 2024 ballot, which Georgia voters approved by a 63%-37% margin.
Rising property taxes as a result of high property valuations and millage rates have elicited strong responses from Georgia residents, and this approach was an effort by state lawmakers to provide some relief. Before it was on the ballot, the Foundation summarized how the bill would attempt to do so. One key aspect, though, was that local jurisdictions had the choice to opt out of participating in the exemption.
A few months later, many school districts across Georgia have done just that. This is troubling, if not ironic, news for local taxpayers, as these opt outs have come despite Georgia school districts holding billions of dollars in reserves. Indeed, per pupil funding in the state has increased by 45% in five years, and the cumulative reserves of local districts amounts to $6.5 billion.
This year, lawmakers introduced House Bill 92 to address concerns held by both taxpayers and local governments about the homestead exemption. The bill extended the date by which local governments could opt out of the exemption, but also provided a mechanism by which they could rescind their opt out. Governments can opt back into the exemption this year by April 30 of this year and by March 1 in future years.
These measures seek to balance concerns from local governments, which fear a resulting loss of revenue, and to honor the will of Georgia taxpayers who overwhelmingly voted to adopt the exemption last year. HB 92 passed both chambers last Thursday when the House agreed to the Senate’s amended bill.
Governing bodies have found themselves in a complicated clash of interests with the homestead exemption. However, the General Assembly also moved to provide tax relief in more straightforward ways, such as reducing the income tax. House Bill 111, which has also been adopted by both chambers, reduces the state income tax from 5.39% to 5.19%.
This accelerates Georgia’s tax reform effort that began with the Tax Reduction and Reform Act of 2022, or House Bill 1437, which simplified five income tax brackets into a flat 5.49% tax for all earners. That bill also included a measure to reduce that flat tax to 4.99% by 2030, and HB 111 expedites that timeline in hopes of, in Lt. Gov. Burt Jones’ words, “eliminating our state income tax and putting money back in taxpayer pockets.”
The lieutenant governor’s office also praised the passage of House Bill 112, which provides a one-time tax credit for taxpayers who filed returns for both 2023 and 2024. These rebates are $250 for single taxpayers or married couples filing separately, $375 for head-of-household filers and $500 for married couples filing jointly.
Lawmakers also sought to provide Georgia veterans with tax relief by passing House Bill 266, which exempts all military retirement benefits from the state’s income tax.
Finally, one late entry into the House hopper seeks to continue reforms to Georgia’s tax structure with the creation of a Taxpayer Relief Fund. This would supplement revenue to gradually reduce income tax rates and other forms of tax relief by capturing revenue surpluses to be returned to taxpayers. House Bill 880 would also set a path for the lowest rate possible for individual and corporate income tax to fall over time from 4.99% to 3.99%. Since this bill was introduced after Crossover Day, it will be up for debate in 2026, the second year of the biennium session.
Taxpayers can expect some relief to come from the 2025 session. We will have to wait and see whether the homestead exemption will lower Georgians’ property taxes – and whether local jurisdictions give us the opportunity to find out – but lawmakers are pressing forward to overhaul Georgia’s outdated and uncompetitive tax code.
