Repeal of Refundable Low Income Credit Would Hurt the Poorest Georgians, which would lead to a Tax Increase

Institute on Taxation and Economic Policy: 62 Percent of Those Affected Live Below the Poverty Line

At the end of the legislative session, the republican-controlled Georgia House of Representatives quietly approved a bill, HB 1219, that would increase Georgia taxes by about $20 million a year by paring back a tax credit that only affects the very poorest Georgians.

(A group of advocates for the poor and elderly, including the American Association of Retired Persons, has called on Gov. Sonny Perdue to veto legislation that would eliminate income tax rebates of $26 to $52 that go to low-income Georgians).

The bill’s proponents have repeatedly implied that the beneficiaries of the existing credit pay no taxes, so the credit amounts to a “handout.” But in fact, the Low Income Credit offers a valuable offset to the sales, excise and property taxes that loom largest for low-income families.

Georgia law currently allows low-income individuals and families with Federal Adjusted Gross Income (FAGI) under $20,000 to claim a tax credit of up to $26 for each family member— which means that a family of four can receive as much as $104 from this credit. The per-person credit gradually phases out as income approaches $20,000. Although the Low Income Credit is part of the state’s personal income tax form, the credit is available to low-income taxpayers who face little or no personal income tax liability. This feature, called “refundability,” ensures that families who pay little in income tax but face unaffordably high sales, excise and property tax loads can use the Low Income Credit to offset part of these other taxes.

Refundability is an increasingly common feature in state tax laws: about 25 states now allow refundable tax credits on income tax forms, most of which are state versions of the federal Earned Income Tax Credit (EITC). The Georgia credit is, in general, much less generous than state EITC’s: a state with a credit equal to 10 percent of the federal EITC allows low-income married couples with two children a credit of up to $504 in 2010, almost five times the allowable amount under the Georgia credit. The version of HB 1219 that was approved by the House Ways and Means Committee earlier this week would remove the refundability feature of the Low-Income Credit, so that the amount of the credit cannot exceed a taxpayer’s income tax liability before credits.

HB 1219’s Tax Hike Would Fall Hardest on Low-income Families

An ITEP analysis of HB 1219’s tax increase shows that 61 percent of the state tax hike under this plan would fall on the poorest 20 percent of Georgia individuals and families—a group with incomes averaging $9,700 a year—and that virtually all of the tax hike would be paid by the poorest 40 percent of Georgians. For those in the poorest twenty percent of the income distribution seeing a tax hike, the average state tax increase would be $38.

Not surprisingly, the lion’s share of the tax hike under this plan would fall on Georgia individuals and families whose incomes fall below the poverty line for their family size in 2010. ITEP estimates that 62 percent of the state tax hike under HB 1219 would fall on already-poor families—making these families even poorer.

The unfairness of the proposed tax hike is especially disturbing because the poorest Georgians already pay more of their income in state and local taxes than any other income group. A November 2009 ITEP analysis showed that the poorest families pay an average of 11.7 percent of their income in Georgia state and local taxes, more than twice as high as the 5.7 percent of income that the very best-off 1 percent of Georgians must pay. 1 HB 1219 would obviously make this imbalance even worse.

Let me say this, that $25, $45, $55 goes a long way in helping seniors that are making under $20,000 a yr. This is a campaign issue democrats better run on, especially in rural areas of the state.