A Georgia Senate panel on Monday supported gradually lowering the state’s income tax rate from 5.75% to 4.99% and putting a cap on how much the state spends on its lucrative film tax credit.
The Senate Finance Committee rewrote House Bill 1437, which would have cut the income tax rate to a flat 5.25%.
The original House bill would save taxpayers $1 billion a year. The House approved the proposal, backed by House Speaker David Ralston, R-Blue Ridge, earlier this month.
Under the Senate version, the income tax rate would gradually fall to 4.99% for everyone. In the first year the measure would take effect, 2024, the first $20,000 of income earned by a Georgia couple would be taxed at the lower 4.99%. Personal exemptions would also be increased.
Senate Finance Chairman Chuck Hufstetler, R-Rome, said the Senate version would also include an income tax credit to help lower-income Georgians.
Critics of the House version said 500,000 families would pay higher taxes under its plan because of changes it made in tax law.
“We were really trying hard to not have anyone paying higher taxes,” Hufstetler said.
The Senate measure would delay the phase-in of lowered rates any year the state doesn’t have enough money in its reserves to pay for it, any year the state tax collections don’t grow at least 3% or if collections are lower than any of the five previous years.
The Senate proposal would also cap the amount of money the state spends on the film tax credit to $900 million a year. Probably more important for the industry, it would eliminate the ability of film companies to sell their tax credits.
The film tax credit has been a policy mainstay over the course of recent Republican administrations. Georgia has grown its film industry by leaps and bounds by giving the nation’s most lucrative credits for film work.
About 80% of the credits are sold by film companies that pay little in Georgia taxes to people or companies that owe state taxes, according to state auditors.
So, for instance, if a film company spends $3,333,333.33 in Georgia and meets all the necessary state criteria, it can earn a 30% tax credit worth $1 million.
But since many companies aren’t based in Georgia, they owe little or no money in state taxes, so they sell the credit — for cash — to any entity that owes state taxes. Those entities — often other companies — buy the credits at a discount. They may pay $800,000 for a $1 million credit. The film company receives the $800,000, and the buyer — either a person or company — sees a $1 million reduction in taxes.
Sen. Nan Orrock, D-Atlanta, said the industry supports 75,000 jobs in Georgia.
“I would feel very cautious about whacking this tax credit,” Orrock said. “It’s hard to have a comfort level with that being added in.”
How much of the Senate’s plan survives will be determined by what happens when it begins negotiating with the House.
“We obviously know this is going to go back and forth between the House and Senate,” Hufstetler said.
Danny Kanso, senior tax policy analyst for the left-leaning Georgia Budget and Policy Institute, said the Senate version made improvements to the House tax bill.
“Members of the Senate have made a number of positive changes that would make Georgia’s tax code fairer,” said Kanso, who has been critical of the “flat tax” rate proposal of the House, saying a vast majority of the benefits would go to high-income earners.
In a tweet, Kanso praised the Senate panel for putting limits on the film tax credit.
“Why should Georgia be on the hook for up to 30% of the expenses for film & TV productions? Permanently subsidizing a huge portion of costs for an entire industry is not justifiable. This is made worse by the current lack of caps, disclosures, or basic safeguards,” he wrote.
The General Assembly session is scheduled to end April 4.
