Who knew Georgia lawmakers were such fans of the property tax? Only a year after giving serious consideration to a plan that would have repealed most local property taxes in the state, the state General Assembly has ratified, and sent to Governor Perdue, a budget plan that would provide a 50% exclusion for capital gains taxes that's estimated to cost north of $340 million a year, and pay for it by eliminating the state's $20,000 property tax homestead exemption (technically $8,000 of assessed value, but Georgia homes are valued at 40% of market value for tax purposes).
Paring back the property tax break, known as the Homeowner Tax Relief Grant or HTRG, isn't the dumbest idea you'll hear this week, but that's primarily because the capital gains plan takes that coveted spot.
A recent ITEP report gives the skinny on why state capital gains tax breaks are a misguided tax strategy in general, and the arguments presented therein all apply to Georgia. But there's an extra layer of absurdity to this strategy in the Peach State-- Georgia already allows a very generous capital gains break, and it's targeted to the group most lawmakers would say most need capital gains breaks: the elderly.
In 2008, a Georgia taxpayer aged 62 or older can deduct $35,000 of "retirement income" from her taxable income. This can include pension benefits, but can also include a full $35,000 of capital gains. This is on top of the regular exemptions and deductions available to all Georgians, mind you. And a married couple, both of whom are over 61, can deduct $70,000 of retirement income.
Bottom line is that it's fairly hard to be a senior in Georgia and pay any capital gains tax at all. So who benefits from the cap gains cut included in the budget? Very rich people. And not that many of them. A new ITEP analysis released today shows that 77 percent of the benefits from the capital gains proposal would go to the wealthiest 1 percent of families, and that the poorest 80 percent of the state's income distribution would collectively see less than 1 percent of the tax cuts.
The second-dumbest component of the Georgia plan is repealing the HTRG. Done correctly, this would be an OK move: smarter people than I have argued correctly that there are better approaches to targeted property tax relief than a state-funded homestead exemption, and that a targeted "circuit breaker" credit could provide more relief to fixed-income homeowners and renters at a lower cost than the HTRG.
But the legislature's action last week doesn't count as "done correctly." They've simply pulled the rug out from under local governments, forcing them all to choose either to continue to provide the homeowner exemption at their own expense or else increase property taxes on most Georgia homeowners.
Getting to this point in the budget process took a lot of difficult and painful decisions-- which makes it all the more crazy that the HTRG got yanked to pay for something as frivolous as a capital gains tax cut.
The good news is that the budget is not yet law, because Governor Perdue hasn't signed it. And there's some indication that he's concerned about the fiscal implications of the cap gains cut. Here's hoping he throws some cold water on the legislature's drunken tax-cutting binge.
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