This report was revised on February 12, 2024, to correct an error in Missouri’s personal income tax result. This correction moved the state from 35th to 31st most regressive, thereby causing four other states (Rhode Island, Georgia, South Carolina, and Michigan) to each move one spot in the rankings. The rounded national average tax rate on the bottom quintile also increased by 0.1 percentage points due to this change.
Georgia’s Tax System Exacerbates Inequality, In-Depth National Study Finds
Recent Policy Changes Widened This Inequity
GEORGIA – Georgia’s tax system is upside-down, with the wealthy paying a lesser share of their income to tax than low- and middle-income families, and income tax cuts to come will slightly widen that disparity. That’s according to the latest edition of the Institute on Taxation and Economic Policy’s Who Pays?, the only distributional analysis of tax systems in all 50 states and the District of Columbia.
“As Georgia shifts to a flat income tax in 2024 and considers accelerating planned cuts to the income tax rate, lawmakers must take into account the fact that these changes make Georgia’s tax code more regressive and deliver vastly outsized benefits to those already at the top of the economic ladder,” said Danny Kanso, GBPI Senior Fiscal Analyst.
“Lawmakers must prioritize better targeted forms of relief that simultaneously accomplish other policy goals, such as enacting a state child tax credit or earned income tax credit, to boost take-home pay for working families.”
Increasing Georgia’s standard deduction to $12,000 for single filers and $24,000 for married Georgians filing jointly (and consolidating existing personal exemptions) will save Georgians up to $214 for singles and $552 for married filers in the 2024 tax year. However, the change from Georgia’s current graduated tax brackets to a flat tax of 5.49 actually amounts to a small tax increase for most Georgia households. Accelerating the reduction of Georgia’s flat tax from 5.49% to 5.39% would save middle-income households an average of $34 next year, while delivering just 13% of $349 million in total tax savings to the lowest 60% of income earners or those making up to about $77,000 per year.
The report’s key findings for Georgia:
The lowest-income 20 percent of taxpayers face a state and local tax rate that is 49 percent higher than the top 1 percent of households. The average effective state and local tax rate is 10.3 percent for the lowest-income 20 percent of individuals and families, 9.6 percent for the middle 20 percent, and 6.9 percent for the top 1 percent.
- Georgia has the 33rd most regressive tax system in the nation.
- The planned personal income tax rate reduction from 5.49 percent to 4.99 percent between 2024 and 2029 will worsen regressivity. If that policy were in effect in 2024, it would drop Georgia by 1 place on the ITEP Inequality Index to 31st most regressive.
- Georgia is one of 41 states that tax the top 1 percent less than every other income group, and one of 34 states that tax their poorest residents at a higher rate than any other group.
Nationally, tax systems in 44 states exacerbate inequality by making incomes more unequal after collecting state and local taxes, while systems in six states plus D.C. reduce inequality, the report finds. On average across the country, the lowest-income 20 percent of taxpayers face a state and local tax rate nearly 60 percent higher than the top 1 percent of households. The nationwide average effective state and local tax rate is 11.3 percent for the lowest-income 20 percent of individuals and families, 10.5 percent for the middle 20 percent, and 7.2 percent for the top 1 percent.
“When you ask people what they think a fair tax code looks like, almost nobody says we should have the richest pay the least. And yet when we look around the country, the vast majority of states have tax systems that do just that,” says Carl Davis, ITEP’s Research Director. “There’s an alarming gap here between what the public wants and what state lawmakers have delivered.”
Recent policy changes have exacerbated or lessened regressivity in state tax systems, depending on the choices made by lawmakers.
Many states with tax codes that already increase inequality have doubled down on regressive tax policies in recent years. Arkansas, Idaho, Iowa, Kentucky, Nebraska, and West Virginia, for instance, have taken steps to deeply cut taxes on more affluent households and wealthy corporations.
On the other hand, many of the states with tax codes that reduce inequality, or at least do less than average to widen inequality, have made strides toward more progressive tax policies in recent years. Massachusetts, Minnesota, New Jersey, New Mexico, New York, and the District of Columbia, for instance, have taken steps both to raise taxes on more affluent households and lower them for low- and moderate-income families.
“We’ve seen a lot of states shift their tax systems to become even more regressive in recent years by enacting deep tax cuts for the wealthiest. But we know it doesn’t have to be like this. There is a clear path forward for flipping upside-down tax systems and we’ve seen a handful of states come pretty close to pulling it off,” said Aidan Davis, ITEP’s State Policy Director. “The regressive state tax laws we see today are a policy choice, and it’s clear there are better choices available to lawmakers.”
About the report:
Who Pays? is the only distributional analysis of tax systems in all 50 states and the District of Columbia. The comprehensive 7th edition of the report assesses the progressivity and regressivity of state tax systems by measuring effective state and local tax rates paid by all income groups. No two state tax systems are the same; this report provides detailed analyses of the features of every state tax code. It includes state-by-state profiles that provide baseline data to help lawmakers and the public understand how current tax policies affect taxpayers at all income levels. Over 99 percent of all state and local taxes, measured by their revenue contribution, are included in the analysis.
Institute on Taxation and Economic Policy (ITEP) is a non-profit, non-partisan tax policy organization. We conduct rigorous analyses of tax and economic proposals and provide data-driven recommendations on how to shape equitable and sustainable tax systems. ITEP’s expertise and data uniquely enhance federal, state, and local policy debates by revealing how taxes affect people at various levels of income and wealth, and people of different races and ethnicities.