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Numerous academic studies show that tax policy impacts where people want 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 Georgia can reform its tax code to better compete with its low-tax neighbors and spur economic growth.
Georgia is one of the fastest-growing states in the country: its population grew 2.9% from 2020 to 2023, the 12th largest increase among the 50 states. But Georgia, right in the middle of the country's most populous region, isn't the only southern state that's growing. Over the same period, neighbors South Carolina and Florida each grew by 5%, while Tennessee (3.1%) and North Carolina (3.8%) also saw significant growth.
Taxes are a factor that influences population growth. All other things being equal, employees and entrepreneurs prefer states with lower tax rates and simpler tax laws. 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 northern neighbors, also have better corporate tax climates.
State business tax climate map
Tax Foundation https://taxfoundation.org/research/all/state/2024-state-business-tax-climate-index/
A comparison of income tax rates in the region shows a similar picture. In 2022, Georgia implemented reforms that gradually lower the flat income tax rate from 5.49% to 4.99% in 2029. This is a good reform that lowers Georgia's top marginal income tax rate below South Carolina's. Unfortunately, Georgia still lags behind most of its other neighbors. Both Tennessee and Florida have no income tax, and North Carolina has a top tax rate of just 4.5%.
The Buckeye Institute's new report offers Georgia policymakers some options to make the tax code more competitive. The first is a more aggressive cut in the income tax rate than the one passed in 2022. Instead of a final tax rate of 4.99% in 2029, this plan would reduce the tax 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 lead to the creation of 16,000 additional jobs. It would also reduce tax revenue by $4.9 billion by 2030, although that could be offset by 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 see the abolition of corporate tax in Georgia. A common misconception is that companies pay all corporate tax on their profits. While it's true that shareholders and owners bear some of the burden of corporate taxes, research shows that higher corporate taxes also affect workers and consumers by reducing wages and increasing prices. The Buckeye Institute's plan lowers Georgia's corporate tax rate by about 1.15 percentage points each year until it reaches 0% in 2028. It is estimated that by 2028 this would increase investment by $4.4 billion, GDP by $5.5 billion and create 10,000 new jobs.
While Georgia's current tax policy is not terrible, it is important for policymakers to remain vigilant about what their neighbors are doing. States constantly change their policies in competition for people and businesses—just one of the many benefits of federalism—so tax policies that are good today may be bad tomorrow. California's decline is an example of what can happen when state officials ignore the changes around them.
Georgia policymakers should seriously consider the Buckeye Institute's proposals and would be wise to adopt such a proposal to ensure they do not fall behind their neighbors. The economy is the most important issue for voters right now, and a tax code that incentivizes work and investment is critical to strong economic growth.
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I am a senior economic opportunity fellow at Stand Together and Stand Together Trust. I write about state and local politics, urban development, population development and labor markets. My writing has appeared in national media outlets such as USA Today, US News and World Report, Real Clear Policy, and The Hill, as well as regional outlets such as the Detroit Free Press, Las Vegas Sun, Cincinnati Enquirer, and Orange County Register. among others. I am also the author of Dayton: The Rise, Decline, and Transition of an Industrial City. In addition to my research, I have taught economics courses at Florida State University, Clemson University, and George Mason University and have received excellent reviews on Rate My Professor. I earned my Masters and PhD in Economics from Clemson University and a BS in Economics and a BA in Comparative Religion from Miami University in Ohio.
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