Georgia law limits how much officials can set aside in state “rainy day” reserves, but a change being considered by the House could make it easier to use revenue surpluses in the future to cut taxes.
Under state law, no more than 15% of the prior year’s revenue collected from taxpayers can be socked away in reserves meant to pay for services in an economic downturn. The state currently has about $5.2 billion in the fund.
But the post-COVID-19 shutdown economy brought the state massive surpluses, and in October it reported $16 billion in rainy day and “undesignated” reserves that can be used for pretty much anything.
Under House Bill 464, which the House Ways and Means Committee passed on Wednesday, the 15% cap would go away. But the measure’s sponsor, Ways and Means Chairman Shaw Blackmon, R-Bonaire, said anything over 25% of the previous year’s revenue left in the surplus funds could be used to cut taxes — via an income or property tax rebate, for instance.
It makes it clear where House members hope extra money will go.
Gov. Brian Kemp recommended and lawmakers approved such rebates in 2022 and 2023.
The rainy day and undesignated funds currently have almost 50% of the previous year’s state revenue, so under the bill, if passed, lawmakers could put billions of dollars toward tax cuts.
The vote Wednesday came shortly after Kyle Wingfield, president and CEO of the Georgia Public Policy Foundation, a conservative think tank, made just such a suggestion to the committee.
“How the state raises its money does matter,” Wingfield said. “Generally, the private sector will spend money more productively than the public sector.”
Translated: Giving people more money to spend is better for the economy than letting the government spend it, according to Wingfield.
The General Assembly passed legislation in 2022 to gradually cut the state income tax rate from 5.75% to 4.99% by 2029. It fell to 5.49% on Jan 1, and lawmakers are expected to pass another bill to cut it this year to 5.39%.
Wingfield ran the committee through a series of scenarios to cut or even eliminate the income tax, which is the largest single source of income the state has to pay for schools, policing, public health care, prisons and dozens of other services,
Among them: With $5 billion worth of investment — such as surplus money — the state could cut the income tax rate to 3.75%.
Lt. Gov. Burt Jones, a likely candidate for governor in 2026, has called for doing away with the income tax, and Republicans who run the General Assembly have long sought to do the same, if possible. But the state raised about $17 billion from individual income taxes last year, more than half of what it took in to pay for services. That makes such a change difficult without deeply cutting spending or finding a new source of money.
Wingfield said Georgia is competing for business with states such as Florida and Tennessee, which don’t have an income tax, and North Carolina, which has been lowering rates.
He said lower income taxes would boost Georgia’s economy, which is the message House Republicans on the Ways and Means Committee wanted to hear.
“If we give (the tax money) back,” Blackmon said, “it has a bigger impact than if we spend it.”
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