Georgia’s Revenue System Shaped by History of Racist Policies

The structure of Georgia’s modern revenue system—which determines how much money the state can use to fund Georgia’s budget—developed during the turbulent decades of the 1930s through 1960s, a period during which the state was primarily governed by segregationists who resisted New Deal-era federal assistance and struggled to finance basic government programs and services.

At the beginning of the twentieth century, Georgia generated most of its revenue from a state property tax, which in the intervening decades was weaponized to systematically disenfranchise, intimidate and economically harm Black Georgians. Property tax was implemented alongside the state’s poll tax, which was maintained until 1945. Property tax assessors were given wide latitude to favorably value white landowners’ property while leveraging tax assessments to push Black land and business owners into poverty and, in many cases, eventually seize their property. In 1929, the state adopted corporate and individual income taxes and, in 1937, established the relatively flat individual income tax bracket structure that continues to form the basis for the current tax code. In 1951, the state enacted a sales and use tax of 3 percent, which was increased to its current level of 4 percent in 1989.

Structural racism exists when racist policies, practices, attitudes and other factors combine to create or perpetuate inequities. For example, racist policies and practices produced mass incarceration and worked alongside racism in hiring to worsen occupational segregation, where many people of color work in jobs that do not pay a living wage. As a result, unjust policies, like a regressive tax code, disproportionately impact workers of color and their families.

As revenues from income and sales taxes increased, the state phased out its property tax and eliminated it in 2016; local property taxes remain. Historic injustices and harmful policies have resulted in vast disparities in income across race and ethnicity in Georgia. Regressive tax policies at state and local levels worsen those disparities by asking those making the lowest incomes to pay the largest share of what they earn in taxes.

Georgians with Lowest Incomes Pay Highest Share of Income in State and Local Taxes

People of Color Overrepresented Among Those Paying Highest Share

Source: Institute on Taxation and Economic Policy, June 2023.

Where Does Georgia’s Money Come From?

Georgia’s fiscal health depends on the state’s ability to raise money from a variety of sources in a reliable way. Like most states, Georgia collects revenue from a mix of personal and corporate income taxes, sales taxes, gas and vehicle taxes and various other levies and fees. Income taxes are the cornerstone of Georgia’s revenue system, accounting for half of all state funds. Sales taxes are the second largest revenue source, representing slightly less than a quarter of annual collections. A fair and reliable revenue system requires both types of taxes.

Income taxes help balance the regressive effects of sales taxes and fees by allowing the state to collect a proportionate share of revenue from the wealthiest earners and most profitable corporations. A healthy income tax is also less sensitive to economic trends, which can boost revenue growth during good times but decline sharply when recessions occur.

Sales taxes provide a less consistent source of yearly revenue, and they fall more sharply on middle-class families and people with lower incomes. Georgia also offers broad exemptions from sales taxes for most services. However, sales taxes remain a core funding source that allows the state to generate revenue from consumption and economic inputs that would otherwise be exempt from taxation.

In recent years, lawmakers have enacted several measures to ensure sales taxes are applied to online marketplaces and, most recently—in the 2023 Legislative Session—digital downloads. However, the state’s sales tax is not assessed on the purchase of most services and large parts of Georgia’s economy, such as construction labor, the finance industry, attorneys or physicians. Some sales tax exemptions were intentionally created to avoid taxing products families rely on, such as groceries. In contrast, sales of most services are not taxed because lawmakers have not proactively updated the tax code to include them.

Income Tax Raises About Half of All State Revenue

Source: Governor’s Budget Report Amended FY 2023 and FY 2024; Office of Planning and Budget, June 2023.

Funding Sources

Georgia’s total FY 2024 budget, including federal funds, is $55.8 billion and is made up of six major funding sources:

General Funds–The state-funded portions of education, Medicaid and most other traditional state services are paid for through the $30.8 billion General Fund, which includes money raised by income taxes, sales taxes and various other taxes and fees.

Federal Funds–A large share of Georgia’s overall spending for health care, K-12 education, transportation and other services is paid through the administration of $17.9 billion in federal funds.

Agency Funds–These $5.5 billion in revenue include tuition and fees from colleges and university system research funds, in addition to regulatory fees and revenue raised directly by individual state agencies.

Lottery Funds–These $1.5 billion in revenue are dedicated to preKindergarten programs and scholarships for higher education.

Tobacco Settlement Funds or Grants–This ongoing annual payment, $149 million in FY 2024, resulting from a legal settlement with the country’s four largest tobacco companies over health care costs, can be used for anything in the budget.

Intrastate Transfers–The $5.5 billion of intrastate transfers include payments from the health benefit plan for state employees.

General and Federal Funds Make Up Most of $55.8 Billion in 2024 State Spending

Lottery Funds

$1,514,645,315

Motor Fuel Funds

$2,032,931,199

Agency Funds

$5,465,275,199

Federal Funds

$17,943,235,596

State General Funds

$25,788,959,077

Other State Funds

$2,951,586,308