For the 2025 fiscal year, Georgia legislators voted to replace the previous progressive tax system with a flat tax of 5.39% — changing the tax code for the first time in 88 years. The previous income tax system relied on a progressive tier of taxation, which is usually in place to help low-income families reduce their tax burden while maintaining overall tax revenue by taxing high earners at higher rates.
Progressive income taxes are built in a bucket system so that moving up a tax bracket doesn’t move all earnings into a higher level of taxation. That way, decreasing taxes on the lowest tax bracket decreases taxes for all earners while increasing taxes on the top tax bracket only affects part of higher earners’ income.
The previous tax system was progressive in name, but it provided little distinction between the tax brackets, taxing all income over $7,000 at the same rate.
The upper limit to exempt income was $750 and the highest distinction between tax brackets was $7,000.
Georgia lawmakers have been considering changing the tax system since 2010 when House Bill 1405 established a task force to research tax reform. Dr. Christine Ries, professor of economics at Georgia Tech, was a part of that task force. She described the previous tax code as being both antiquated and confusing: “Every year the legislature would pass new code and it would just get added on to whatever was there,” she said, noting that “one of the items was whether you could tax deduct a steel-wheeled tractor.”
The task force surveyed Georgians, visiting towns and allowing citizens to propose what they wanted to see changed in the tax code. Some of those surveyed wanted more clarity. For instance, if “you’re a farmer and you go to buy feed for your cows, can you be exempt from paying sales tax, which was 6%, or not?” Ries explained.
After they concluded their surveys and research, the task force created a report with several suggestions for updating the tax code, most of which Ries said were adopted by legislators. With these changes, legislators clarified parts of the tax code, implementing a more structurally sound system.
Over the next four years, the income tax rate will decrease incrementally. This gradual change allows the legislators to observe the effect of the tax changes on state revenue and growth and alter the code in case of unexpected economic conditions.
Lawmakers are attempting to strengthen the economy through tax cuts, an idea backed by many economists who believe tax cuts increase economic opportunity. Ries described such economists as “pro-growth economists” — those who encourage economic growth as much as possible. “If you want more of something, don’t tax it. If you tax something, you’ll get less of it,” she explained, citing the idea that the higher income taxes are, the more discouraged people would be to earn money.
Pro-growth economists view cutting taxes as a more productive way of reducing economic disparity than progressive taxes. Ries reasoned that lowering the income tax rate “requires sales tax increases that hurt the poor… but income tax rate cuts create growth and lots of low to medium income jobs.” These economists see lowering income tax rates as a way to increase job growth while generating the same amount of revenue through increasing sales tax.
However, despite changes in the tax code towards clarity, the new flat income tax, as well as sales and excise taxes, are all regressive taxes. While progressive taxes seek to generate revenue by raising the tax rate for people with more to give, regressive taxes work by taxing everyone at the same percentage or low-income earners at higher rates.
While on paper flat taxes appear to be an equitable approach, these tax systems tend to burden lower-income individuals. Despite what the name suggests, the percentage of income paid towards taxes between income levels isn’t flat. Instead, it curves downward, with the top 20% of earners paying a smaller portion of their income on taxes than the portion lower-income individuals pay.
Sales taxes, despite potentially increasing the tax burden on low-income people, have benefits such as levying taxes on people who would otherwise not pay taxes, including tourists and non-residents. For instance, some states like Florida generate revenue from their large tourist populations through high sales tax and no income tax.
To reduce taxing inequalities while still capitalizing on out-of-state consumers, state policy analyst Neva Butkus of the Institute of Taxing Economic Policy (ITEP) suggested looking to a different area: corporate taxes. “Certain states like Louisiana right now are proposing getting rid of its corporate franchise tax. When those cuts happen, a huge windfall of that lost money to the state is not coming from residents. It’s coming from people who live out of state.” By increasing the corporate tax while decreasing the sales tax, Butkus believes that in-state residents will benefit from the lessened tax rate while still collecting tax revenue from people out of state in the form of corporations.
Unlike individual taxes, corporations have more to consider than the tax code in each state, so raising corporate taxes doesn’t necessarily hamper economic growth the same way that income taxes may. When evaluating the Georgia economy, Ries did not see an impact on growth when changing the corporate tax rate. She explained that, for example, the unique benefits to locating in Georgia — such as the benefit of getting, say, an engineer from Georgia Tech — outweigh the potential loss of a 3-6% difference in corporate tax a company could get by relocating to a different state.
Conversely, lowering corporate taxes decreases overall state revenue, which may be made up for by expanding regressive sales taxes. “In terms of revenue raising, it’s not so much that we can use corporate income taxes to fully replace sales tax… it’s more about fairness overall,” Butkus said, adding that “these corporations are using our state’s resources… and they’re using the workforces, and they benefit very, very much from a robust public education system… and they should pay for it.” However, in the new Georgia tax code, the corporate income tax rate was reduced as well.
In addition to the changes in corporate taxes, the move to a more regressive taxing system is, to some people, a step backward for income inequality. Georgia is the state with the 11th highest disparity between income in the country, and some people view a regressive taxing system as exacerbating the problem. Butkus pointed out that high-income earners have more ways to get around paying some state income taxes through having money saved in places where they collect little in taxes, while low-income earners often end up spending their income right back on regressive sales taxes as soon as they make it. “When you compound things like sales taxes at the state level and things at the local level that are really, really regressive, [taxes] tend to eat into even bigger chunks of those people’s income because they have to pay for necessities,” Butkus explained.
The ability to immediately save money by paying less in regressive taxes is one of the biggest reasons why Butkus views progressive taxing as a way to help low-income people. However, she also pointed out that the communities that can benefit the most from progressive changes in the tax code are people who don’t have as great an impact on the government as the top 1%.
As Georgia entered 2024, it experienced a $16 billion government surplus, leading legislators to propose this tax cut. However, 13.6% of Georgia’s population is still living in poverty. How and even if the tax code should be used to uplift these people is up for debate. As Ries pointed out, “When you start messing around with the tax structure in order to create social policy, it’s like a huge hammer trying to hit a little teeny nail,” not to mention the lengthy process behind any sort of tax reform.
However, taxing policies directly impact the lives of every American through the multitudes of programs and tax revenue funds. Butkus even views the payment of taxes, when structured well, as a way to give people financial stability and a better quality of life. The potential job growth from lowering income taxes is less important to her than improving the immediate stability of families and low-income people. “Just invest in your people… when we all have better schools and better education systems, those people are going to thrive. That’s what’s gonna make our economy better,” she said.
On the other hand, Ries believes that a high income tax discourages people from acquiring wealth. “Tax on income is not a tax on the rich. It is a tax on becoming rich,” she said. However, Butkus explained that taxes can be progressive through more than just increased income taxes on the rich or, as Ries mentioned, people who want to become rich. The special council report agreed with this, stating that progressive taxing could be achieved by “offsets that target low-income groups,” as opposed to progressive brackets that “skew the entire tax structure.” One such option is a fully refundable child tax credit like the one implemented nationally post-pandemic. It gives families back a certain amount of money in their tax returns, often based on their income. “We had one good year of really good research that showed what a huge expansion of this kind of credit could do,” Butkus explained, “and it — I mean it cut child poverty in half, like, basically overnight.”
Taxing policies have an undeniable impact according to any economist, regardless of whether the policies aim to create jobs or improve quality of life. Given how few states have truly progressive taxing systems in the U.S., Georgia isn’t alone in its move to a more regressive tax system. According to the ITEP, only six states in the country have a system of taxing that is more progressive than regressive. However, meaningful tax reform is hard and lengthy, and as Butkus said, “Money is influence and power, and those [influential and powerful people] are the people that often get to have the ears of a lot of our lawmakers.”
