Among the dozens of bills and a $17.9 billion budget signed into law by Georgia Governor Perdue on Tuesday is a law eliminating low-income tax credits for hundreds of thousands of individuals in Georgia — cutting the size of the credit overall by about two-thirds. The legislation signed by Gov. Perdue did not, however, include the 50 percent reduction in the tax on long-term capital gains that was passed by the state’s legislature for the second year in a row.
Specifically, Governor Perdue approved the legislature’s decision to eliminate the “refundability” of the state’s low-income tax credit. As a result, those low-income Georgians hit hard by sales, excise, and property taxes will no longer be able to receive refunds through the income tax system to offset these burdens.
Overall, this change amounts to a $20 million tax increase on those in Georgia who are suffering most, and least able to pay during the current recession. A recent ITEP analysis of this change to the low-income credit shows that 61 percent of the tax hike will fall on the poorest 20 percent of Georgia individuals and families—a group with incomes averaging $9,700 a year—and that virtually all of the tax hike will be paid by the poorest 40 percent of Georgians.
Refundable Credits Still OK for Corporations, but Not Families
While the refundability of Georgia’s low-income tax credit has been eliminated, this same feature of many of Georgia’s corporate tax credits will remain intact. As a report by the Georgia Budget and Policy Institute (GBPI) points out, the refundable portion of corporate tax credits provided by the state are actually similar in cost to the recently repealed refundable portion of the low-income credit. It’s more than a little surprising, to say the least, that Georgia’s lawmakers believe low-income individuals to be less worthy of tax breaks than corporations.
Governor Vetoes Capital Gains Cut
Fortunately for Georgia residents, Governor Perdue vetoed for the second time an effort by Republican legislative leaders to cut capital gains taxes by an estimated $340 million. According to an ITEP analysis, 77 percent of the tax reductions resulting from this change would have gone to the richest 1 percent of taxpayers in the state, while the 80 percent of taxpayers earning less than $76,000 per year would have received just 1 percent of the overall capital gains tax break.
Proponents of the capital gains tax break touted the effort as a sort of economic and jobs stimulus legislation, despite the consensus that exists among a wide array of economists that capital gains tax cuts are among the least effective stimulus efforts and have no connection to long-term growth.
As ITEP’s recent report “Who Pays?” points out, the poorest fifth of families in Georgia already pay nearly twice as much in taxes as a percentage of their income as the top 1 percent of Georgians. The legislature’s clear desire to shower the wealthy in additional tax breaks while forcing low-income Georgians to pick up the tab would only make this stark regressivity even worse.
Instead of continuing down this road, Georgia lawmakers could make their budget fairer and more sustainable by passing reforms like repealing the deduction for state income taxes along with a whole variety of reforms.
In an Atlanta Journal-Constitution op-ed, Kathy Floyd of AARP Georgia sums up our feelings about the budget this year by saying, frankly, “Georgia deserved better.”