State economist says Georgia revenues have flattened; cites capital-gains volatility and federal trade policy as top risks

Good afternoon. For those who do not know him, Bob Bushman, the state economist, told the House Appropriations Committee that Georgia's strong revenue gains in 2021'and 2022 have largely faded and that total tax revenues have "been essentially flat since 2022," despite short-term boosts from interest earnings on large reserve balances.

Bushman said the state's three largest tax sources'personal and corporate income taxes and sales taxes'grew by about $8.9 billion over five years but that 91% of the $9.3 billion cumulative growth occurred in fiscal 2021 and 2022. He told lawmakers that much of the earlier gain came from volatile capital-gains realizations: "Tax year 2021 was a great year for gains," producing an estimated $3.1 billion in state tax at the top statutory rate, he said, and that gains fell nearly in half in tax year 2022.

The presentation emphasized why withholding collections have held up despite rate cuts and why overall revenue appears stronger than some simple comparisons would suggest. Bushman said withholding benefited from continued real wage and salary growth, and that nonwithholding collections in recent years were driven by large one-time payments related to business and investment income. He also noted an administrative change'the option for pass-through businesses to file and pay at the entity level'shifted roughly $1 billion from personal to corporate income taxes in fiscal 2023.

Bushman reviewed broader economic indicators that support revenue prospects: Georgia's unemployment rate was 3.7% in December, below the national average; wage and salary income in Georgia has outpaced the nation over recent quarters; and Georgia's inflation-adjusted GDP has cumulatively grown slightly faster than U.S. GDP since the pre-pandemic baseline.

On downside risks, Bushman told the committee that the single biggest threat to the state outlook is federal trade policy. He warned that broad, higher tariffs would raise input costs for many Georgia firms, increase consumer prices and raise the odds of retaliatory actions that could harm exporters. "The biggest risk to the state economy over the next year or two is related to federal trade policy," he said. He cited Georgia's role in global trade'noting roughly $234 billion in goods moved through Georgia ports in 2023 and that exports accounted for about 6% of state GDP'to underscore potential exposure.

Lawmakers asked questions about several specific revenue topics. On the governor's proposed 20-basis-point income-tax cut, Bushman said the governor's budget already assumes the cut and that its effect on fiscal 2025 revenue was modest because the cut took effect midyear; he said the budget anticipates a 1.9% decline in amended fiscal 2025 general fund revenues but only 0.4% growth budgeted for fiscal 2026 after the policy change is phased in. On the state's one-time resources and reserves he said fiscal 2024 produced a surplus of about $2.6 billion and that combined reserves (including the revenue shortfall reserve and undesignated reserves) were about $16.4 billion, before any legislative rebate or one-time spending.

Committee members also asked about policy options that could raise revenue in the future. On tobacco taxes, Bushman said higher rates reduce consumption but typically still raise net revenue because demand is relatively inelastic and because shifting between products (for example, to e-cigarettes) is taken into account in fiscal notes. On motor-fuel and electric vehicles, he noted that the existing excise motor-fuel tax rate is adjusted for inflation and changes in average fleet fuel economy and warned that widespread adoption of electric vehicles will shrink the gasoline tax base and will require lawmakers to consider alternative funding mechanisms for roads.

Bushman closed by summarizing his baseline forecast: he has not assumed a recession for the next two fiscal years, expects modest real growth in personal income and slower disinflation than many expected, and described the budget's revenue estimates as "conservative, as they should be." He also cautioned that some data are still incomplete: for example, he said the capital-gains distribution for tax year 2023 was not yet available to analyze in detail despite knowing total revenue results.

The committee asked for copies of Bushman's slides and followed with additional questions about growth drivers and sectoral performance; Bushman said manufacturing'including electric-vehicle and other transportation-equipment production'and construction were among faster-growing sectors in recent data but did not provide a definitive ranked list in the session.