Research & Commentary: Georgia Income Tax Reform

Published February 19, 2016

Since 2012, an increasing number of states have been looking into ways to reform their tax codes. Many states, most notably North Carolina, have enacted meaningful changes that will lower the burden on taxpayers, and many other states – including Louisiana, Maine, Michigan, Ohio, and Wisconsin – are now seriously considering fundamental tax reforms. 

The Tax Relief Act, a new proposal sponsored by Georgia state Sen. Judson Hill (R-Marietta), would, if passed, help the state take several major steps towards reducing the tax burden imposed on individuals and businesses, all while improving Georgia’s economic competitiveness. Hill’s proposal would cut the state income tax for individuals down to a flat rate of 5.4 percent, increase the personal exemption by $2,000 per person, eliminate the marriage penalty, and eliminate Georgia’s Corporate Net Worth Tax. The Tax Relief Act also limits some itemized deductions for filers who itemize their taxes, but it maintains the availability of deductions given for all charitable contributions, medical expense deductions, and most mortgage interest and property tax deductions, capped at $25,000. 

Taxes on income are considered by many economists to be the most destructive form of taxation, stunting economic growth by taking dollars out of the hands of consumers and businesses and stifling production, innovation, and risk-taking, which are the main factors that drive economic growth. At 6 percent, Georgia currently has the highest rate among southeastern states. Cutting the individual income tax to 5.4 percent from 6 percent would move Georgia’s rate below those in North Carolina and South Carolina. 

Along with the Tax Relief Act, Hill will also be filing a proposal for a new state constitutional amendment. The amendment would create a tax trigger that would require the government to reduce the personal income tax rate down to a 5 percent floor. The tax cut trigger is conditional, only going into effect if state revenues reach a certain threshold and the state’s “rainy day” fund contains $1.7 billion or more. The cuts would be gradual, averaging around 0.2 percent per year. 

Reducing the tax burden on individuals and businesses is good public policy. States should lower and flatten their tax systems so there are as few tax brackets as possible. States can start lowering corporate taxes by eliminating corporate tax exemptions, subsidies, and credits, thereby creating a fairer, more stable fiscal system for state governments and promoting long-term growth for all industries. 

The decrease in Georgia’s income tax rates would be a strong step toward making the state more competitive and attracting new business. Income taxes are among the most disruptive factors affecting economic growth because they discourage capital from flowing into a state and hinder the creation of new jobs. 

The following documents examine income taxes in greater detail.

Ten Principles of State Fiscal Policy
The Heartland Institute provides policymakers and civic and business leaders a highly condensed, easy-to-read guide to state fiscal policy principles. The principles range from “Above all else: Keep taxes low” to “Protect state employees from politics.” 

Policy Tip Sheet: Spending Reforms–spending-reforms
The Heartland Institute outlines several reforms state legislators can undertake to address spending problems, including privatization, tax and expenditure limits, and retirement reforms. 

Rich States, Poor States
The eighth edition of this publication from the American Legislative Exchange Council and authors Laffer, Moore, and Williams offers both individual-state and comparative accounts of the negative effects of income taxes. 

‘Triggers’ Cut State Taxes; But Are They Good Policy?
Elaine S. Povich of Pew Trusts examines tax triggers in several states and how these triggers affect state budgets. 

What Is the Evidence on Taxes and Growth?
In this Tax Foundation study, William McBride examines the effects of tax policy on economic growth. He finds the literature on the topic demonstrates long-term economic growth is to a significant degree a function of tax policy. If governments seek to spur investment, he writes, they should lower taxes on the earnings of capital. If they seek to increase employment, they should lower taxes on workers and the businesses which hire them. The report also includes a discussion of the effects of progressive tax systems. 

America Will Pay More in Taxes in 2015 than it Will Spend on Food, Clothing, and Housing Combined
Americans will pay $3.3 trillion in taxes to the federal government and an additional $1.5 trillion to state and local governments in 2015, notes Kyle Pomerleau of the Tax Foundation. “America’s total tax bill of $4.8 trillion is about 31 percent of the nation’s total income. This is a significant amount and is more than America will spend on food, clothing, and housing combined,” he writes. 

State Budget Reform Toolkit
The American Legislative Exchange Council outlines a set of budget and procurement best practices to guide state policymakers as they work to solve the budget shortfalls. The toolkit will assist legislators in prioritizing and more efficiently delivering core government services by advancing free markets, limiting government, and promoting federalism and individual liberty. 

Keep an Eye on the Trigger Mechanism in Oklahoma’s Tax Cut
Scott Drenkard of the Tax Foundation discusses Oklahoma tax cut trigger and suggests possible improvements. 

State and Local Spending: Do Tax and Expenditure Limits Work?
This empirical analysis by Benjamin Zycher of the American Enterprise Institute applies data from 49 states (excluding Alaska) over the period 1970–2010 to the empirical question of the effectiveness of TELs, which display a wide variety of features across the states. 

Tax and Expenditure Limits for Long-Run Fiscal Stability
Emily Washington and Frederic Sautet of the Mercatus Center examine how states can correct for the inflexibility inherent in state expenditure systems to respect taxpayers’ desires for government services over time. Although they are not a perfect solution, binding TELs prevent policymakers from increasing state spending beyond voters’ willingness to pay for government services, the authors argue. 

State Income Taxes and Economic Growth  
Barry W. Poulson and Jules Gordon Kaplan explore the impact of tax policy on states’ economic growth within the framework of an endogenous growth model. They used regression analysis to estimate the impact of taxes on economic growth in the states from 1964 to 2004, and they found higher marginal tax rates significantly suppress economic growth. 

The Historical Lessons of Lower Tax Rates Examining the historical results of income tax cuts, Daniel Mitchell of the Heritage Foundation finds a distinct pattern throughout American history: When tax rates are reduced, the economy’s growth rate improves and living standards increase.


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Budget & Tax News at, The Heartland Institute’s website at, and PolicyBot, Heartland’s free online research database, at

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