Kemp signs tax cuts into law

Georgia lawmakers started the year with talk of eliminating both the state income tax and the property tax for homeowners.

The goal proved elusive, but they did compromise on a scaled-back income tax cut and on legislation to decelerate the rapid increases in local property tax costs for homeowners.

And on Monday, Gov. Brian Kemp signed those two measures into law.

“We believe it is your money, not the government’s,” Kemp said.

The Senate had at first voted to eliminate the income tax on the first $50,000 in annual earnings for individuals and the first $100,000 for married couples filing jointly. The goal was to increase the cuts for higher earners over time until the tax was abolished altogether. But the bill Kemp signed into law is more modest.

House Bill 463 will immediately reduce the income tax rate to 4.99% from the current 5.19%, then gradually reduce it by another percentage point over eight years if state revenues remain strong. Income tax deductions would also rise by 50% over that period, from the current $12,000 for single filers, to $18,000 — and double that for married couples. Dependent deductions also would rise by $2,000 over eight years from the current $4,000.

The new law also waives income tax on the first $1,750 of overtime pay and cash tips  retroactive to the beginning of the year and increases the amount of excluded retirement income for those 65 and older by $5,000.

The increase in income tax cuts depends on a continual rise in state revenue estimates and collections. The governor’s annual revenue estimate must increase 3% and the prior year collections must have exceeded those in each of the three prior years. Also, the state must have enough in reserves to absorb the cost resulting from the increasing cuts.

Last week, Kemp’s office announced that revenues were continuing to rise, with April net tax collections up 5.9% over April of last year. However, nearly half of the nearly $4 billion came from the income tax. Those collections were up 10.1%.

Lt. Gov. Burt Jones said before Kemp signed the measures that it took months of negotiation between the Senate and House to reach a consensus. But Jones, a Republican candidate for governor, said they accomplished their goal on both income taxes and property taxes.

Senate Bill 33 was also a compromise. The House had hoped to eventually abolish property taxes. Instead, the measure will keep homeowner property taxes in check by restraining the increase in the official value of their homes.

The idea of eliminating the property tax altogether faced resistance from local governments and schools, which are funded in large part through that tax.

The new law will cap valuation increases at the rate of inflation.

“Property tax valuations have skyrocketed in every corner of this state,” said House Speaker Jon Burns, R-Newington. “Mileage rates have remained the same or even increased in some cases, placing a significant financial strain on families, homeowners and retirees living on fixed incomes.”

The amount paid for property taxes depends on two variables: the tax rate — called a millage rate — and property valuation. Cities, counties and schools could simply bump the tax rate part of that formula to bring in more revenue.

That might not be politically popular, but it would keep the lights on.

There is a catch for schools, though: nearly all of Georgia’s 180 school districts are limited to a maximum rate of 20 mills under the state constitution.

Most school systems are already near the maximum tax rate, with the state average at 15 mills.