Update (2/20/2018): This post has been updated to reflect Gov. Deal’s support for an amended version of HB 918.

Federal tax reform has led to a revenue windfall for many states, leaving those states to decide how to manage the new funds. Some states have wisely opted to channel their new revenue into state-level tax reform, and it appears Georgia might follow suit with its $4.7 billion revenue windfall over the next five years.

Governor Nathan Deal (R), who has previously been hesitant about reforming the state’s tax system, is warming to the idea of modifying the tax system this session and is supporting HB 918, a bill that has now been reworked to double the standard deduction and cut income tax rates, eventually reducing the top income tax rate to 5.5 percent by 2020.

Some legislators in the state, however, want a bolder approach. Representative Sam Teasley (R) has suggested the legislature look at lowering individual income tax rates. He also suggested using last year’s House Bill 329, which lowered the top state income tax rate to 5.4 percent, as a starting point.

Ranking just 36th overall on our State Business Tax Climate Index, Georgia has room to improve in several areas of its tax code. Revenue constraints will factor into the legislature’s decisions, but the state certainly doesn’t lack options. Below are not the only options for the state, but a starting point toward better tax policy:

A major corporate reform opportunity for Georgia is to couple to the new federal treatment of capital investment. Under the new federal law, purchases of short-lived capital assets can be expensed immediately instead of writing them off over a number of years. This is an immensely pro-growth feature of the federal code and would encourage investment in the state. This provision is, however, a front-loaded cost for states and temporary at the federal level, but the extra revenue can help offset the cost.

Another area worth examining is Georgia’s individual income tax code. It ranks 42 nd on our Index’s individual income tax subcomponent, signaling that there’s lots of room for changes.

on our Index’s individual income tax subcomponent, signaling that there’s lots of room for changes. The state could consider inflation-adjusting its personal exemptions, standard deductions, and brackets, like the federal income tax code has done for decades. Failing to index the tax code for inflation leads to “bracket creep,” where taxpayers are pushed into higher income tax brackets due to inflation instead of an actual increase in income. Bracket creep ultimately results in a tax increase for some taxpayers, without any new legislation.

The legislature should also consider lowering individual income tax rates. Lowering the rate would make Georgia more competitive with many of its neighbors. Neither Tennessee nor Florida tax income (Tennessee only taxes interest and dividend income, and the tax is being phased out), and both Alabama and North Carolina levy a lower rate than Georgia’s top 6 percent.

Moving the state to a lower-rate, flat income tax would be a bold step in the right direction. Similar legislation has passed both the House and the Senate in recent years and some recent legislation has included an earned income tax credit to help retain the tax code’s progressivity for low-income taxpayers. A lower-rate, flat income tax would have all the benefits of lowering the rate, but also automatically would inflation-adjust the code and mitigate the economic consequences of marginal tax rates.

It’s important to remember that businesses pay individual income taxes, too. Many businesses, including sole proprietorships, partnerships, and S corporations, are structured as pass-through businesses, and pay taxes through the individual income tax code, not the corporate income tax. Lowering the rate would benefit both individual taxpayers and businesses in the state.

Legislators in my home state of Georgia have a lot to consider with $4.7 billion in new revenue, and they owe it to taxpayers in the state to at least consider a number of pro-growth tax reform opportunities.