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Tax Policy


The Earned Income Tax Credit (EITC) is a federal tax credit that serves as one of the nation’s most effective anti-poverty policies. It provides a bottom-up tax cut that is only available to those who work and it grows in size, up to a point, as wages rise. That structure encourages people to stay employed and work more hours, rather than rely on public assistance such as welfare. 26 other states offer a state version of the EITC that parallel the federal program and provide additional relief to working families - Georgia has no such program. As incomes are falling but expenses are rising, the EITC is a proven tool to strengthen tomorrow’s workforce. Georgia’s implementation of a state EITC would further incentivize people to work and succeed in the work force, as well as provide their children a better education and savings for college. Passing a state EITC should be a central part of the legislative discussion in 2016.


Lawmakers in the 2016 session will look at House Bill 445, a broad tax policy overhaul which includes a tax shift from income to sales taxes. This proposal would harm Georgia by placing a higher burden on lower and middle class families and less on wealthier families. As a rule, wealthier taxpayers pay less with lower income taxes while low and moderate income families pay more with higher state taxes and fees. Georgia’s personal income and corporate income taxes are currently 6% each while the state sales tax is 4% (localities may impose up to 4% more in sales taxes).  House Bill 445 would cut income taxes (both corporate and personal) by a third and raise the sales tax to 5%. Crucially, the bill would also eliminate the sales tax exemption on groceries, which would have a highly disproportionate effect on low income families who spend a higher percentage of their incomes on groceries. Only 2 other states tax groceries at the full state and local tax rate. Since 2012, Kansas and North Carolina have passed similar tax shift plans which have led to budget shortfalls, credit downgrades, and cuts to public education. This tax shift policy is flawed and better alternatives exist.


Instead of a broad tax shift to sales taxes, Georgia should implement a bottom-up income tax cut and raise Georgia’s tax shield. Georgia should lower taxes to lower and middle income families. The tax shield, amount of annual income that’s protected from the state income tax, can be strengthened through raising the standard deduction to $5,000 for single taxpayers and to $10,000 for married couples filing jointly, raising the personal exemption to $3,800 for singles and $7,600 for married couples filing jointly, and raising the dependent exemption to $3,800. This proposal, and specifically raising the marriage deduction and exemptions, would eliminate the “marriage penalty” currently in Georgia’s tax code.


Additionally, Georgia can modernize the sales tax so that it applies equally to purchases of digital downloads. For example, Georgians currently pay taxes on DVDs but not on movies that they download, even though the value to the buyer is the same. This expansion of the sales tax is actually included in the aforementioned House Bill 445.


One final step in bettering Georgia’s tax code would be to reduce the currently generous itemized deductions on income taxes. These deductions, which include mortgages and property taxes, provide the largest benefit to wealthy families which are more likely to own homes.


Overall, Georgia can strengthen and modernize its tax policy by establishing a state EITC, raising Georgia’s tax shield and other changes to the income tax as an alternative to House Bill 445.

Committee to Elect Michael Smith
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