Tax Reform Will Boost Georgia’s Economy, Study Shows

Piles of academic studies show that tax policy impacts where people choose to live. In general, states with lower tax rates attract more businesses and residents. A new study from the Buckeye Institute’s Economic Research Center and the Georgia Public Policy Foundation shows that Georgia can reform its tax code to better compete with its low-tax neighbors and boost economic growth.

Georgia is one of the fastest growing states in the country: Its population grew by 2.9% from 2020 to 2023, the 12^th biggest increase among the 50 states. But Georgia, right in the middle of the most populous region in the country, is not the only Southern state that is growing. Over this same period its neighbors South Carolina and Florida each grew by 5%, while Tennessee (3.1%) and North Carolina (3.8%) also experienced substantial growth.

Taxes are one factor that impacts population growth. All else equal, workers and entrepreneurs prefer states with lower tax rates and simpler tax codes. According to the Tax Foundation, both Florida and South Carolina have a better business tax climate than Georgia (see map below). Tennessee and North Carolina, Georgia’s neighbors to the north, also boast better business tax climates.

A comparison of personal income tax rates in the region tells a similar story. In 2022 Georgia enacted reforms that gradually reduce its flat income tax rate from 5.49% to 4.99% in 2029. This is a good reform that brings Georgia’s top marginal income tax rate below South Carolina’s. Unfortunately, Georgia still lags most of its other neighbors. Both Tennessee and Florida have no personal income tax and North Carolina’s top rate is only 4.5%.

The Buckeye Institute’s new report gives Georgia policymakers some options to make its tax code more competitive. The first is a more aggressive personal income tax rate cut than the one enacted in 2022. Instead of a final rate of 4.99% in 2029, this plan would cut the rate to 3.99% by 2030. The report estimates that by 2030 this plan would increase investment by $3.3 billion, GDP by $5.1 billion, and result in 16,000 additional jobs. It would also reduce tax revenue by $4.9 billion by 2030, but this could be offset using half of the $10 billion in reserves Georgia has accumulated. The other half would remain in reserves to ensure Georgia is prepared for the next economic downturn.

Another proposal would eliminate Georgia’s corporate income tax. A common misconception is that businesses pay all corporate income taxes out of their profits. While it is true shareholders and owners bear some of the burden of corporate income taxes, research shows that higher corporate income taxes also impact workers and consumers by decreasing wages and increasing prices. The Buckeye Institute’s plan reduces Georgia’s corporate income tax rate by about 1.15 percentage points each year until it reaches 0% in 2028. It estimates that this would boost investment by $4.4 billion, GDP by $5.5 billion, and generate 10,000 new jobs by 2028.

While Georgia’s current tax policies are not terrible, it is important for policymakers to remain alert to what their neighbors are doing. States are always changing policies in a competition for people and businesses—just one of the many benefits of federalism—so tax policy that is good today may be bad tomorrow. California’s decline is an example of what can happen when state officials ignore changes happening around them.

Georgia’s policymakers should seriously consider the Buckeye Institute’s proposals and they would be wise to adopt one to ensure they do not fall behind their neighbors. The economy is the number one issue for voters right now and a tax code that incentives work and investment is crucial for strong economic growth.

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