Georgia's Republican leaders, facing a deficit pinch, want to save $20 million a year by eliminating the refundability on the Low Income Credit offered on the state's income tax forms. (This is an alternative to a state EITC, and gives a per-person credit up to $26 for each low-income Georgia family member.)
ITEP estimates that making the credit nonrefundable would take away about three-quarters of the value of this credit, and that most of the tax hike would fall on the poorest 20 percent of Georgians.
As it happens, Georgia's current tax system offers an important reminder of why refundability is such an important feature in low-income tax credits. The poorest 20 percent of Georgians pay an average of 11.7 percent of their income in Georgia state and local taxes — and taxes other than the income tax represent 11.2 percent. (The personal income tax on this group averages 0.5 percent of their income.) This means that lawmakers seeking to make the state's tax system somewhat less regressive can only do so through tax credits that can be applied against not only the income tax, but against sales and excise taxes as well.
A new report from the Georgia Budget and Policy Institute (GBPI) points out that many of the recipients of the refundable Low Income Credit are seniors, and suggests that if lawmakers are intent on balancing the state's budget on the backs of seniors, a more sensible approach would be to reduce the state's very generous retirement income exclusion, which allows seniors at all income levels to enjoy $35,000 (per spouse) of retirement income tax-free. Reducing this cap from $35,000 to $32,000 would raise just as much money as the Low Income Credit proposal, without affecting a single fixed-income senior.
The report also makes some interesting points about refundable tax credits. For example, the state also offers refundable tax credits to corporations, and these cost the state about as much as the refundable credits for low-income families. As the report explains, "This raises the question of why refundable credits are appropriate for Georgia's corporate community but not residents with the lowest incomes."