I’ll explain why Georgia is weighing repeal of its state income tax, summarize Art Laffer’s testimony to state senators, lay out the tradeoffs between income and sales taxes, highlight real-world examples and costs of exemptions, and note the political stakes of choosing which forms of taxation to rely on.
Georgia currently levies a flat state income tax of 5.19 percent, and lawmakers are considering whether eliminating that tax would help young families and workers struggling with the rising cost of living. The move under discussion is simple in theory: reduce or remove the income tax to boost take-home pay and make the state more competitive for jobs and residents. The harder part is replacing revenue in a way that doesn’t choke state services or create perverse incentives.
Dr. Art Laffer testified before Georgia senators and pointed to a historical pattern he finds troubling: states that add an individual income tax often see declines in economic output and total revenue. He highlighted 11 states that introduced an income tax since 1960 and argued none succeeded in raising net revenue after doing so. His point is blunt and aimed squarely at the risk of taxing production.
Every state that implemented an individual income tax since 1960 had both its gross domestic product and total tax revenue decline, Dr. Arthur B. Laffer of The Laffer Center told Georgia senators Monday.
Of the 11 states that introduced an income tax in that time frame, not one succeeded in boosting their total revenue. Those states were West Virginia, Indiana, Michigan, Nebraska, Illinois, Maine, Pennsylvania, Rhode Island, Ohio, New Jersey and Connecticut.
“What I’m saying here is when a state introduces an income tax, it collapses before your very eyes,” said Laffer. Adding, “If they were to get rid of their income tax, they could return to the state they were prior to the income tax which would be an enormous improvement.”
Opponents of repeal worry about the budget hole that would open without income tax receipts. Laffer addressed this by pointing to the mechanics of sales taxes and the pots of revenue hidden in exemptions. He argued policy decisions about exemptions matter more than the headline tax rate and that scrapping certain credits could allow a shift away from taxing income.
It’s possible, Laffer said, to do away with the state income tax and potentially even lower the sales tax if the sales tax credits were scrapped.
That point spoke directly to another concern brought up by Orrock who pointed out some states that eliminated income taxes have higher sales taxes.
“Your sales tax exemptions cost you in revenues more than the income tax collects,” said Laffer.
Nine states operate without a state income tax, including Florida, Texas and Wyoming, and they fund government in other ways. Those states typically rely more on consumption taxes or natural resource revenues, and they tax purchases instead of production. The distinction matters: sales taxes hit consumption, while income taxes hit productivity and investment.
Supporters of repeal emphasize immediate relief to households. Testimony highlighted how rising prices have pushed many Georgians into precarious financial situations, and cutting or eliminating the income tax would boost take-home pay overnight. Advocates argue that increased disposable income circulates through the local economy, supporting businesses and services that depend on consumer spending.
Georgia ranks among the top 20 most expensive states for single adults, Patrice Onwuka, director of the Independent Women’s Center for Economic Opportunity, told the committee. With prices rising more than 20% over the last four years due to inflation, 52% of Georgians are living paycheck to paycheck, Onwuka said.
“Eliminating the state income tax would be an immediate boost in take home pay that would give women the ability to purchase the essentials they need and increase their discretionary spending,” said Onwuka.
There are tradeoffs. Sales taxes can be regressive, hitting lower-income households harder as a share of income, unless policymakers carve out exemptions for essentials. Dr. Laffer’s recommendation pushes the opposite direction: eliminate exemptions and broaden the sales tax base so the rate can be lower while still collecting needed revenue. That approach pries revenue from every transaction, including those by visitors and people passing through.
Practical politics often block bold tax reform. Income taxes create constituencies and special-interest carve-outs that are difficult to unwind, and politicians can use the tax code to influence economic behavior. Republican policymakers supporting repeal argue taxes on production distort markets and that a simpler consumption-based system is fairer and easier to administer.
Implementation choices determine outcomes. Georgia could try phased repeal, structural reforms to sales tax exemptions, or a mix of revenue tools to maintain services while boosting take-home pay. The debate going on in the state legislature is about those design choices: who pays, which behaviors to discourage or encourage, and how to keep core services funded without driving away workers and businesses.
Tax policy is ultimately a decision about what kind of economy a state wants. The options on the table in Georgia are clear: keep taxing income with the risks that entails, or shift toward consumption-based funding mechanisms that favor disposable income and, potentially, growth. The testimony from Dr. Laffer and others makes the philosophical and fiscal arguments loud and clear as lawmakers consider a path forward.
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