Why should Georgia consider making changes to a tax structure that appears to perform well? Generally, because we seek to ensure that the state will continue to proceed in the "right" direction. Second, the tax is so important to the state; of the revenue tools that Georgia uses, the individual income tax is the most productive, yielding over 45 percent of the state's 1997 tax revenue compared to 37.5 percent from the sales tax. Third, the individual income tax has had the same basic structure for over fifty years. Perhaps we should examine where the tax fits into our overall state revenue structure and what changes, if any, are needed. The passage and approval this year of House Bill 1162, which raises the personal exemption amounts closer to the level used for federal income taxes, confirms that some changes appear to be desirable. But is that change sufficient, or do we need to make other modifications, or even totally eliminate this revenue tool?
This paper provides information to assist in answering that question by evaluating the merits of four options for change in Georgia's individual income tax. First, the paper begins with a discussion of how different tax structures affect the distribution of tax burden. The paper then presents comparative information regarding state income taxes. We conclude with an analysis of four options for change to Georgia's tax structure: (1) increase the standard deduction to correspond to the federal income tax amounts; (2) eliminate the retirement income exemption currently permitted in Georgia; (3) eliminate the top tax bracket of 6 percent; and (4) eliminate the income tax completely.