Georgia Shows Contrasting Direction Of Federal & State Tax Burdens

While Congress is getting ready to raise federal taxes by hundreds of billions of dollars as part of the Inflation Reduction Act (IRA), it hasn’t gone unnoticed that lawmakers in many state capitals are doing the opposite, enacting tax relief. “Widespread tax breaks in the nation’s statehouses stands in contrast to what’s happening in Washington,” Bloomberg reported on August 9, adding that nearly “two dozen states slashed personal or corporate income-tax rates in the past two years and more than a dozen enacted temporary relief in 2022.”

In addition to cutting income tax burdens, there has been a recent trend of states moving from progressive to flat personal income tax rates. Georgia was among the states where legislation was enacted in 2022 to go to a flat tax. The income tax cut signed into law by Governor Brian Kemp (R-Ga.) in April, which will move Georgia from a progressive income tax code with a top rate of 5.75% to a flat 4.99% income tax over the next seven years, was enacted with the support of most Democrats in the Georgia legislature. In fact, of the 99 Democrats in the Georgia House and Senate, 84 of them voted in favor of the income tax cut.

“Many of my caucus colleagues voted no on this bill, but once the bill was improved, many of us are voting yes to give Georgians back hard-earned money,” said Georgia House Minority Whip David Wilkerson (D) of why most Democrats voted for the flat tax.

Georgia highlights how income tax cuts are being passed in state capitals with support from both Democrats and Republicans. The Peach State’s two U.S. Senators, meanwhile, demonstrate how federal lawmakers are doing the opposite, raising tax burdens on party-line votes.

Only a few months after Democrats and Republicans in Georgia came together to provide relief to households from all income levels, Senators Raphael Warnock (D-Ga.) and Jon Ossoff (D-Ga.) voted for the IRA, which didn’t receive a single Republican vote. The IRA failed to receive any GOP votes in large part because the bill, according to analysis from the non-partisan Joint Committee on Taxation, results in a higher federal tax burden for households in nearly every income level, including on those who make less than $10,000. It’s counterintuitive, but the same state where most Democratic legislators recently joined Republicans in cutting and flattening the state income tax is now represented in the U.S. Senate by two men who cast the deciding votes to impose hundreds of billions of dollars in higher federal taxes, doing so amid the highest inflation rate in four decades.

In addition to voting for tax hikes that will hit millions of households making far below $400,000, breaking President Biden’s oft-repeated tax pledge, Senators Warnock and Ossoff also voted to fund the hiring of 87,000 new IRS employees. That’s enough new IRS workers to fill Mercedes-Benz Stadium, home of the Atlanta Falcons, to capacity and still have more than 16,000 agents waiting outside unable to get in.

Stacey Abrams Attacked A Federal Tax Trial Balloon Supported By One Senator, But Is Mum On Massive Tax Hikes About To Hit Biden’s Desk

Stacey Abrams, the Democratic nominee running to take Governor Kemp’s job this November, hasn’t said whether she supports the IRA. But does a state-level office seeker really need to weigh in on a federal tax proposal? It’s unclear if most Georgians think so, but Stacey Abrams herself certainly does.

Abrams’ silence on the hundreds of billions of dollars worth of tax hikes that Senators Warnock and Ossoff recently passed stands in contrast with Abrams’ criticism of a 12 point policy platform released by U.S. Senator Rick Scott (R-FL) in March. In particular, Abrams attacked one of more than 100 bullets in Scott’s platform because it sounded like it would result in a tax hike. Abrams latched onto that vaguely worded piece of Senator Scott’s platform and sought to tie Governor Kemp to the proposal, even though Kemp had never commented on the Senator Scott’s platform or indicated that he was even aware of its existence.

As the Washington Post fact checker noted at the time, “not a single other Republican in Congress has embraced Scott’s specific tax proposal.” That didn’t stop Abrams from trying to tie Kemp, a state level official, to the federal policy platform of Florida’s junior senator. Abrams wants Georgians to think Kemp is supportive of a federal tax proposal that was never under serious consideration and about which Kemp never said a word. Meanwhile Abrams refuses to say what she thinks of the hundreds of billions of dollars in federal tax hikes that her fellow Democrats actually passed out of the Senate and will soon send to President Biden’s desk. When contacted, Abrams’ campaign declined to comment on the matter.

Critics contend the context for such a large federal tax hike is sub-optimal. The IRA, which is expected to be passed by the House on Friday, August 12, will impose hundreds of billions of dollars in higher taxes after consecutive quarters of economic contraction and at a time when federal tax collections are on track to hit a record high.

“Total collections are running 25% higher in fiscal year 2022,” William McMcBride, an economist at the Tax Foundation, noted about current federal tax collections. “If that pattern holds, total federal tax collections will hit $5.04 trillion in fiscal year 2022, or 21.0 percent of GDP—a new all-time high in both nominal terms and as a share of GDP.”

During the April bill signing for the state income tax cut, Governor Kemp said the bipartisan tax reform package was “designed to put more money into hardworking Georgians’ pockets.” In contrast, the IRA that Georgia’s two senators passed on a party-line vote is designed to put more money into federal coffers.

The Associated Press asserted on August 7 that the bill “keeps to Biden’s pledge not to raise taxes on those earning less than $400,000 a year.” The AP repeated that assertion again more recently, reporting on August 10 that “supporters of the bill did not vote for tax increases on people earning $30,000.” However, as the Joint Committee on Taxation distributional analysis shows, the IRA will increase the federal tax burden for tens of millions of households, not just on those making less than $400,000, but also for those making less than $50,000 and even below $10,000.

Despite the JCT’s distributional analysis showing that enactment of the IRA will result in a higher federal tax burden, even for those at the lowest levels of income, there are still those who dispute whether the President has broken his tax pledge.

“There are no direct taxes on people making less than $400,000,” said Marc Goldwein, senior vice president and senior policy director at the Committee for a Responsible Federal Budget. Eric Toder, co-director of the Urban-Brookings Tax Policy Center at the Urban Institute, said “Biden’s statement is correct if you include only changes in individual income taxes.”

Yet Biden didn’t limit his tax pledge to income taxes alone and even an indirect tax hike still leaves households worse off financially. “The joint committee’s analysis shows that there are a lot of people in the lower income brackets who hold shares, either directly or indirectly, in US companies,” added the Tax Foundation’s McBride.

“The Administration has been very careful to say that the ‘individual income tax rate’ would not change for anyone making less than $400,000 per year, yet everyone knows that the corporate tax burden falls on workers and consumers, as well as owners,” Senate Finance Committee Ranking Member Mike Crapo (R-Idaho) said of the JCT projections. “This analysis shows that burdens of the proposed tax increases in the Democrats’ reckless bill would be so substantial and so widespread throughout all income categories that no amount of temporary health credits, or subsidies for $80,000 luxury SUVs, will overcome the tax increase burdens that would be overwhelmingly felt by lower- and middle-income Americans.”

SenateJCT Confirms: Tax Costs Exponentially Outweigh Benefits | U.S. Senator Mike Crapo of Idaho

Expect misleading reports about the IRA’s tax effects to continue to be spread by other media outlets, the White House, and congressional Democrats. False or misleading statements from politicians or campaigns are not surprising. Though it’s hard for many to understand why media outlets like the AP would report such verifiable falsehoods about the IRA’s tax impact, it does help explain why Gallup recently found only 16% of U.S. adults say they have “a great deal” or “quite a lot” of confidence in the media. That’s a historic low, but as coverage of the IRA demonstrates, it’s deserved.