On April 15, Tax Day, Governor Brian Kemp (R-Ga.) signed House Bill 111, legislation lowering Georgia’s flat income tax from 5.49% to 4.99%. This new income tax cut, the latest in a series of rate reductions passed by Georgia lawmakers in recent years, is projected to save taxpayers $880 million annually.
“While other states are running up budget deficits and raising taxes on their citizens, we’re investing in the priorities of our state while further cutting taxes and returning more than a billion dollars to hardworking Georgians,” Governor Brian Kemp said in a statement. “That’s on top of the tax relief we’ve given in prior years and is a direct result of our conservative budgeting.”
“With the governor’s signature, HB 111 doubles down on the efforts of prior years to reduce the tax burden on Georgians and job creators,” noted the release from Governor Kemp’s office. “With this second acceleration cutting the state income tax rate by another 20 basis points, the total income tax rate will now be down to just 5.19% – a decrease of 56 basis points from the original rate of 5.75%.”
One week after Governor Kemp signed Georgia’s latest income tax cut into law, legislators in neighboring South Carolina are advancing a bill to further reduce and flatten the Palmetto State’s income tax. South Carolina House Speaker Murrell Smith (R) introduced legislation last month, H. 4216, that would move South Carolina from a progressive income tax code with a top rate of 6.2% to a flat 3.99% income tax, with revenue triggers established to cut the rate to 2.49% in the coming years. This week, the House Ways & Means Committee is considering three options for amending the bill.
At a Ways & Means Committee hearing held the morning of April 22, Frank Rainwater, executive director of South Carolina’s Revenue and Fiscal Affairs Office, outlined three income tax reform plans for lawmakers to choose from. Option A would proceed with the move to a 3.99% flat rate. Option B would move the state to a 4.74% flat tax. Option C would cut the top income tax rate from 6.2% to 5.49% and reduce the bottom tax bracket from 3.5% to 1.99%.
Speaker Smith and Ways & Means Chairman Bruce Bannister (R) offered these options in response to concerns that colleagues expressed about the initial version of H. 4216, particularly the share of filers who would see a net increase despite the lower rate. In some legislative bodies leadership is criticized for figuring out a deals in private and foisting them on their caucus without any opportunity for amendment. Speaker Smith is taking the opposition approach in the South Carolina House with tax reform, offering adjustments to address the concerns of colleagues. “This is the way the legislative process should work,” Chairman Bannister said at the start of the Tuesday morning hearing.
During the April 22 Ways & Means Committee hearing, Representative Gilda Cobb-Hunter (D) expressed concerns about scheduling income tax rate reduction based on certain annual revenue triggers being met. Representative Cobb-Hunter questioned “whether it’s fiscally prudent to use revenue triggers given economic uncertainty.”
Uncertainty, however, is precisely what revenue triggers are designed to address. H. 4216, in its current form, brings South Carolina’s income tax rate down to 2.49% if certain revenue triggers are met. In North Carolina, meanwhile, the state’s 4.25% flat income tax will fall to 2.49% in the coming years if revenue triggers are met and will fall further, to 1.99%, under the new budget passed by the North Carolina Senate on April 17. If the economy crashes and state revenue collections subsequently plummet, revenue triggers will not be met and further rate reduction will not take place. In that way revenue triggers act as a fiscal safety valve, ensuring that if revenues unexpectedly decline, that drop will not be exacerbated by additional rate reduction. The way revenue trigger proponents see it, uncertainty over the economy and future revenue collections, rather than make revenue triggers a mechanism of concern as Rep. Cobb-Hunter suggested, makes them all the more needed.
During this week’s Ways & Means hearing, Republicans and Democrats questioned whether South Carolina needs an improved income tax code given how many people are moving to the state, one of the nation’s fasted growing for many years now. Just because California’s economy is growing and is now the world’s fourth largest, as Governor Gavin Newsom (D-Calif.) is touting, doesn’t mean that California’s 13.3% top marginal income tax rate, its cap and trade program, or its heavy regulatory burden do no harm. But that’s the same logic employed by those who claim South Carolina’s strong population growth doesn’t mean the state’s relatively high marginal income tax rate is without consequence.
Several lawmakers also noted during Tuesday hearing that the effective rate paid by South Carolinians is much lower than the listed top rate of 6.2%. While proponents of further rate reduction concede that point, they do not agree that levying such a relatively high top marginal rate is without harm.
Lawmakers questioned the goal of H.4216 during this week’s Ways & Means hearing. It’s goal, proponents contend, can be thought of as unshackling South Carolina from the competitive disadvantage that is its 6.2% top rate, which will still be the highest in the region even when it falls to 6%.
While South Carolina has experienced relatively high levels of population in-migration, proponents of tax reform note that has been the case despite the imposition of such an uncompetitive top marginal rate. “If we are competing for people, we are certainly winning,” Representative Todd Rutherford (D) said during the hearing.
Proponents of further income tax rate reduction, however, describe the state as analogous to a champion Olympic sprinter who has been winning medals despite competing with leg weights around their ankles. It’s great that the runner has done so well despite the ankle weights, but imagine the records they could set if they ditched the ankle weights.
During the Ways & Means Committee hearing, Representative Nathan Ballentine (R) said he was struggling with the fact that, even though it’s a minority of filers, some would face a higher income tax bill despite lower rates, even under the alternative tax reform proposals outlined by Dr. Rainwater. Yet even under some of the most pro-growth and conservative tax reform packages in recent history, though they cut taxes on net and for most, did result in higher bill for some filers.
Some South Carolina lawmakers might decide they will oppose any tax reform plan that, even though it’s a net cut overall and achieves needed rate reduction, results in a net increase for even a small minority of taxpayers. Any legislators who operate under that rationale, however, would also have to oppose the Tax Cuts and Jobs Act, which cut taxes for most but did result in higher bills for some, as well as President Donald Trump’s efforts to extend those rate cuts.
“If we don’t do anything we aren’t that bad,” Representative Ballentine said at Tuesday’s hearing. If South Carolina lawmakers don’t do anything, however, the Palmetto State will remain home to the highest income tax rate in the southeastern U.S. Beyond that is the fact that competing states have continued to enact income tax rate-reducing reforms in recent weeks and months. Given that, many believe that if South Carolina lawmakers take no action to go beyond currently scheduled tax cuts, they’ll be falling behind the competition.
