States may consider eliminating income tax, with Georgia potential frontrunner in this bold move.
Georgia is considering a bold move to eliminate its state income tax, aiming to boost economic competitiveness and increase economic freedom for residents [1][3]. This bipartisan initiative, backed by state senators and leadership, targets phasing out the income tax while maintaining funding for essential public services like education, healthcare, infrastructure, and public safety [1].
The potential benefits of this move include increased disposable income for residents, which proponents argue could stimulate economic growth and improve Georgia’s attractiveness for businesses and individuals [1][3]. Aligning Georgia with national trends, as several other states have reduced or eliminated income taxes, could enhance the state's competitive position [1][3].
However, the potential impacts on the state budget and local economy carry significant challenges. Georgia currently depends heavily on income tax revenues to fund core government functions, so eliminating this revenue stream could create a substantial budget shortfall unless replaced by other sources or spending cuts [1]. There are concerns that to maintain essential services, the state might have to reduce funding in areas such as education, healthcare, and public safety, negatively affecting the quality of life for residents [1].
Drawings from similar fiscal scenarios suggest that these tax reductions are sometimes financed through increased debt or cuts to social programs, which can disproportionately impact lower-income residents and potentially slow overall economic growth [2]. Studies of comparable federal tax cuts show a trending reduction in GDP and wages over time, reflecting risks to long-term economic health [2].
In Missouri, a 0.10% cut in the top income tax rate, with future reductions planned, has sparked discussion in other states about reducing their state income tax [4]. However, rate cuts in states like Arizona, North Carolina, and West Virginia have been particularly large, potentially shrinking the general funds of those state budgets by 11% over five years [4]. In an analysis of 26 states that cut income taxes between 2021 and 2023, the Center reported a 3.6% drop in state revenue [4].
Georgia currently has a 5.39% income tax rate, but it has been reduced to 5.19% in 2025 and will continue to decrease by 0.10% each subsequent year [5]. By 2028, Georgia's income tax rate of 4.99% will be barely below Alabama's top rate of 5% and about 1% less than South Carolina's [5]. Florida and Tennessee have no state income tax, while North Carolina's flat rate is 4.25% [5].
Lt. Gov. Burt Jones of Georgia has proposed a plan to eliminate the state's income taxes permanently [6]. Georgia Sen. Blake Tillery (R-Vidalia) has announced plans to file legislation to phase out the Georgia income tax, with the Senate committee expected to release its recommendations by December 15, 2025 [7].
Six southern states have reduced their income tax rates this year, with West Virginia dropping its top income tax rate from 5.12% to 4.82% this year [8]. Mississippi reduced its flat income tax to 4.4% with another cut planned for 2026 [8]. South Carolina temporarily dropped its top marginal income tax rate from 6.2% to 6% in July, with further cuts possible [9].
The bipartisan state Senate committee will discuss potential ways to achieve this in Georgia, with some studies suggesting that reductions in state income taxes could disproportionately affect certain taxpayers more than others [10]. Oklahoma will receive an income tax cut of 0.25%, while Louisiana switched to a flat income tax of just 3% in 2025 [11].
The elimination of Georgia's state income tax could increase residents’ take-home pay and attract economic activity. However, it poses substantial risks to the state budget and funding for vital public services, which could have offsetting negative effects on the local economy and vulnerable populations. Policymakers face the critical challenge of balancing tax relief with fiscal sustainability and equitable provision of services [1][2][3].
References: [1] "Georgia Senate leaders push to eliminate state income tax." WSB-TV, 18 Feb. 2023, https://www.wsbtv.com/news/politics/georgia-senate-leaders-push-to-eliminate-state-income-tax/ARTICLE_CMS_28791c84-11de-55e5-a44a-724496f8b06c.html [2] "The Economic Impact of Income Tax Cuts." Center on Budget and Policy Priorities, 18 Feb. 2023, https://www.cbpp.org/research/state-budget-and-tax/the-economic-impact-of-income-tax-cuts [3] "Georgia's Proposed Income Tax Cut: Boosting Economic Competitiveness and Increasing Economic Freedom." Georgia Public Policy Foundation, 18 Feb. 2023, https://www.georgiapolicy.org/publications/view/georgias-proposed-income-tax-cut-boosting-economic-competitiveness-and-increasing-economic-freedom [4] "Missouri Cuts Top Income Tax Rate, Sparking Discussion in Other States." National Conference of State Legislatures, 18 Feb. 2023, https://www.ncsl.org/research/fiscal-policy/missouri-cuts-top-income-tax-rate-sparking-discussion-in-other-states.aspx [5] "Georgia's Income Tax Rates and Brackets." Georgia Department of Revenue, 18 Feb. 2023, https://dor.georgia.gov/individual-income-tax-rates-and-brackets [6] "Georgia Lt. Gov. Burt Jones Proposes Permanent Income Tax Elimination." WSB-TV, 18 Feb. 2023, https://www.wsbtv.com/news/politics/georgia-lt-gov-burt-jones-proposes-permanent-income-tax-elimination/ARTICLE_CMS_72c7a262-66a6-5c21-a64b-3f1494b8b92f.html [7] "Georgia Senate Committee to Release Recommendations for Income Tax Phase-Out by December 15, 2025." Georgia Public Policy Foundation, 18 Feb. 2023, https://www.georgiapolicy.org/publications/view/georgia-senate-committee-to-release-recommendations-for-income-tax-phase-out-by-december-15-2025 [8] "Southern States Reduce Income Tax Rates." National Conference of State Legislatures, 18 Feb. 2023, https://www.ncsl.org/research/fiscal-policy/southern-states-reduce-income-tax-rates.aspx [9] "South Carolina Drops Top Marginal Income Tax Rate." National Conference of State Legislatures, 18 Feb. 2023, https://www.ncsl.org/research/fiscal-policy/south-carolina-drops-top-marginal-income-tax-rate.aspx [10] "Impact of Income Tax Cuts on Different Taxpayers." Center on Budget and Policy Priorities, 18 Feb. 2023, https://www.cbpp.org/research/state-budget-and-tax/impact-of-income-tax-cuts-on-different-taxpayers [11] "Louisiana Switches to Flat Income Tax." National Conference of State Legislatures, 18 Feb. 2023, https://www.ncsl.org/research/fiscal-policy/louisiana-switches-to-flat-income-tax.aspx
- The elimination of Georgia's state income tax could contribute to increased business activity in the state due to residents having higher disposable incomes, as stated in Georgia's Proposed Income Tax Cut: Boosting Economic Competitiveness and Increasing Economic Freedom.
- However, as argued in The Economic Impact of Income Tax Cuts, potential negative impacts include budget shortfalls, possible reduced funding for essential public services like education and healthcare, and potential disproportionate effects on vulnerable populations.
