A huge windfall that wasn’t complicates the budget picture for this year’s legislature
By Tom Baxter
In a recent letter to his constituents, Senate Majority Leader Jack Hill explained, with refreshing candor, what has caused the biggest headache Republicans face in this election-year session.
In 2018, sailing on exciting predictions about the blast of revenues expected to come as a result of the recently passed federal tax cut, the General Assembly “went big,” as the AJC’s James Salzer put it then. It voted to reduce the state’s top income tax rate from 6 percent, where it had stood for decades, to 5.75 percent the following year, and from 5.75 to 5.50 percent, upon the General Assembly’s approval this year.
That seemed like a cinch, before Gov. Brian Kemp announced last year that revenues had flattened and directed state agencies to cut their budgets by 4 percent in the current fiscal year and 6 percent in the following one. The authors of the 2018 tax bill anticipated that they might have to back off this year if there was a recession — something obvious, in other words. They didn’t anticipate a fizzle. They didn’t consider the bind they would be in if the revenues just didn’t show up, in the middle of what is supposed to be a booming economy.
There could be several reasons for the decline in revenue, Hill wrote to his constituents, including the increase in tax credits and the problems besetting Georgia’s agricultural sector. But it was the basic assumption propelling the change in the tax code which fell short.
“State leaders were told that a huge windfall was coming the states’ way due to the federal tax cut,” Hill wrote. “It has been impossible to identify any bump the state has received from the federal tax cut. Actually, the opposite has been true.”
The vanished windfall leaves this year’s lawmakers with a choice between even deeper and more painful cuts in state programs and services, or backing down from its 2018 commitment to slash the top rate by a half percent.
The Georgia Budget and Policy Institute has released a poll showing voters aren’t crazy about cutting into programs more in order to pay for the tax cut, especially when they learn that 75 percent of the money from the next phase of the rate cut will go to people making $100,000 or more a year.
The changes lawmakers made in 2018 were so optimistic they went a half-billion dollars beyond what the windfall from the federal tax cut was supposed to be. With the wind now blowing in a different direction, it might not seem hard to admit the error and back off on the tax cut. But that would grossly underestimate the power of the Republicans’ conservative base, and the interest groups which fire them up, in an election year. Correcting the state’s fiscal course would also beg the difficult question of whether the federal tax cut itself was such a good idea, in a year in which President Trump is running for reelection on the opposite premise.
But if the current reduction in the top rate hasn’t proven to be viable when the economy is very good, how viable will a cut twice as large be if the economy sours in a year or so? That’s the real conundrum the legislators face.
The budget bind will color the debates over casino gambling — “think of us as a revenue source” — increasing the teacher pay raise by an additional $2,000, and who knows what else. After the bitter debate over the “heartbeat” abortion bill last year, this was supposed to be a less controversial, down-to-business session, but it’s one that could bring a lot of election year problems.
On the last day of the session each year, there are always a number of tearful farewell speeches by legislators announcing their departure. It’s unusual for one of these to be on a session’s first day, but Sen. Bill Heath of Bremen announced in a choked voice Monday that he will be leaving at the end of the session, following what he called a “wild ride” in politics.
Heath got his start in politics when he defeated the legendary Democratic House Speaker Tom Murphy in 2002. That race, along with Sonny Perdue’s victory over Roy Barnes in that year’s governor’s race, marked the final proof that the era of Democratic dominance under the Golden Dome had come to an end. Heath later served as Perdue’s Senate floor leader.
We’ll see how much of a harbinger Heath turns out to be. This could be a trying session, and with an election ahead and reapportionment around the corner, making that tearful last speech could be tempting this year.