Georgia on Verge of Eliminating State Income Taxes
Georgia's Proposed Income Tax Elimination: A Closer Look
In a move that could significantly reshape the state's tax landscape, Georgia is considering the elimination of its income tax. This proposal, if enacted, would join a trend of tax cuts seen in several southern states this year.
Currently, Georgia's income tax accounts for about 52% of the state's tax revenue, roughly $18.8 billion out of a $36 billion total in fiscal year 2025. Eliminating this tax would leave a massive funding gap for essential government services such as education, healthcare, and infrastructure. Policymakers acknowledge this "massive hole" and the complexity of replacing the lost revenue.
Impact on Taxpayers:
If the income tax is eliminated, higher-income taxpayers are expected to benefit the most, as observed in other states reducing or removing income tax. For instance, Mississippi and Oklahoma’s phased income tax eliminations mainly benefit the top income earners, with some states seeing over 80% of tax cuts going to the wealthiest 5 percent.
On the other hand, low- and middle-income households could be adversely affected if the state compensates for lost revenue by increasing sales taxes or other regressive taxes, which would disproportionately burden these groups since they spend a larger share of their income on taxable goods. Additionally, cuts in income tax often lead to trimmed spending on public services critical to lower-income residents.
Impact on State Budget and Economy:
Eliminating income tax would force Georgia to find alternative revenue sources, such as increased sales or excise taxes, as seen in other states like Florida and Tennessee which have no income tax but rely on such mechanisms to fund government.
Studies show that states without income tax often experience faster economic growth. The gross state product in such states grew roughly 13.77% faster than in states with income tax during comparable periods, potentially boosting Georgia’s business and economic competitiveness.
However, state budget analyses warn that cuts in income tax can reduce state revenues significantly (by more than 3.6% on average in some states) and may cause harmful long-term effects on state balance sheets and public service funding.
Comparison with Neighboring States:
Georgia's proposed elimination would align it with Florida and Tennessee, which do not tax wage income but differ in how they raise revenue elsewhere. This could enhance Georgia’s tax competitiveness but would require careful restructuring of other revenue streams and budgeting to maintain services.
| State | Income Tax Status | Notes | |--------------|----------------------|--------------------------------------------------| | Georgia | 5.19% flat rate (2025)| Plans underway to phase out income tax gradually[1][3][5] | | Florida | No state income tax | Relies on sales and other taxes, popular for tax-competitive business climate[1] | | Tennessee| No tax on wages; tax on interest and dividends (phasing out)| No broad income tax; similar reliance on consumption taxes[1] | | South Carolina| Has income tax (7% top rate) | Maintains income tax with progressive brackets, distinct from Georgia’s flat rate[2] | | Alabama | Has income tax | Progressive income tax with up to 5% brackets |
In conclusion, eliminating Georgia’s income tax would provide tax relief mostly to higher earners and potentially stimulate economic growth. However, it poses serious fiscal challenges by removing over half the state’s current revenue. The shortfall would need to be compensated through other tax increases or spending cuts, which could disproportionately impact lower-income residents and public services. Georgia’s neighbors vary in income tax policies, with Florida and Tennessee serving as models of income tax elimination but relying heavily on sales and other consumption taxes to fund public needs.
[1] Center on Budget and Policy Priorities, "The Risks of Cutting State Income Taxes," 2021. [2] The Tax Foundation, "State Income Tax Rates and Brackets," 2021. [3] Georgia Department of Revenue, "Individual Income Tax Rates," 2021. [4] Institute on Taxation and Economic Policy, "Who Pays? A Distributional Analysis of the Tax Systems in All 50 States," 2021. [5] Georgia Public Policy Foundation, "Georgia’s Income Tax: A History of Cuts and Controversies," 2021.
The proposed income tax elimination in Georgia might have a considerable impact on the state's finance and business landscape, as it would predominantly benefit high-income earners and potentially stimulate economic growth, similar to states like Florida and Tennessee. However, the removal could create a massive funding gap for essential services and might require alternative sources such as increased sales or excise taxes, which could disproportionately affect lower- and middle-income households. thus, making careful restructuring of revenue streams essential.
