From the Georgia Budget and Policy Institute think tank:
Georgia is one of a shrinking handful of states that allow income tax filers who itemize to deduct their state income taxes.Wait. What?
Repealing the deduction for state income taxes brings in badly needed revenue — an estimated $450 million.1 In K-12 education alone, $450 million could have prevented the six furlough days and the additional cuts to the education funding formula in the Amended Fiscal Year 2010 budget.I think that's clear. If you stare at it and focus and maybe read it twice, then email your dad who's a CPA and ask him to explain how this deduction works again.
Many states allow taxpayers to claim the same itemized deductions at the state level as they do at the federal level. However, most states require taxpayers to adjust their federal itemized deductions by adding state income taxes deducted at the federal level back into their taxable income. Most states sensibly disallow the federal deduction for state income taxes in order to prevent the bizarre outcome of state taxpayers using their own state income tax bills to reduce their state income taxes.
Obviously, all tax policy should be like that.
GBPI has argued for a revenue/tax increase for some time now. They are usually very good with their numbers, though the $450 million figure is sourced to tax modeling by the Institute on Taxation and Economic Policy in March 2010.
The other states with this policy are Arizona, Hawaii, Louisiana, Oklahoma, New Mexico, Rhode Island, and Vermont, according to the GBPI. You can download their four page report here.
They've also crunched the numbers on who this would effect:
... middle-income taxpayers affected (less than 15 percent of this income group) would pay an average of $89 more and Georgians in the top one percent of income, most of whom would be affected, would pay an average of $3,133 more.So there you go. It hits the wealthy a little bit*. For comparison's sake, the state saves about $45 million a day when it furloughs state employees across the board, according to the governor's office. So this is 10 furlough days worth of new revenue.
* a poor choice of words, not meant to suggest math was done today by this blog. Because it wasn't.
1 comment:
I am no accountant, but I did look at this a few years ago, and I think the operative line should read:
by adding state income taxes deducted at the federal level back into their state taxable income.
Played back in real-time: States take their cut first, then Fed. In our case, Fed and Georgia income tax is based on whatever's left after Georgia income taxes are applied.
So, if GA income tax is still 6%, that means Fed and GA taxes apply to 94% of taxed income, instead of 94% and 100%, respectively. This should amount to a $0.36 state income tax refund on every $100 of taxed income, for folks who take itemized deductions.
Post a Comment