Sensible Tax Change Would Bring in $450 Million, Avoid Additional Service Cuts

The General Assembly is poised to slash the budget more in light of another month of declining revenues caused by the Great Recession and Georgia's structural deficit.

"This problem is too large to solve with budget cuts alone," said Sarah Beth Gehl, deputy director of the Georgia Budget & Policy Institute. "We should seek a balance of cuts and new revenues through sensible tax changes such as repealing the deduction of state income tax."

One concrete way to bring in $450 million* is to repeal the bizarre state tax deduction, which almost all states do not allow. The deduction not only costs nearly a half-billion dollars, but it unfairly lowers the effective tax rate for taxpayers who itemize.

"This tax change would not affect the vast majority of taxpayers with incomes less than about $50,000, since they do not itemize," said Gehl, "but for those who do, about 15 percent of filers, the average tax increase would be $85. (The total amount will still be deductible on the federal income tax.)

"Another $1 billion cut to state services will have an immediate negative impact on Georgia's economy, as
well as devastating effects on the education and healthcare infrastructure," said Executive Director, Alan Essig. "This sensible tax change should be part of a balanced solution going forward, along with the proposed increase in the cigarette tax."

* $450 million is an estimate calculated by the Institute on Taxation and Economic Policy, March 2010.

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