Eliminating Corporate Net Worth Tax This Legislative Session Sends Badly Needed Dollars Out of Georgia

Why should Georgians give corporations — including many headquartered in other states and countries — a special tax break during a recession when the state cannot afford to pay for our schools, state parks, courts, and child abuse protection workers, among many, many other vital services?

That is just what House Bills 998 and 1023 propose to do. HB 1023 passed the House Small Business Development and Job Creation Committee, while HB 998 remains in the House Ways and Means Committee.

More than half of corporations pay just the minimum for the corporate net worth tax —only $10. Georgia faces a $4.6 billion deficit and our recovery is going slowly: Every single dollar counts, including the $30 million from this tax.

There is no evidence that ending this tax will incite businesses to come to Georgia, nor make up for the lost revenue. If the tax is a nuisance for businesses, then lawmakers should make common sense reforms, such as changing to a single sales apportionment formula to match the corporate income tax returns.

However, if lawmakers want to eliminate the corporate net worth tax entirely, they should do so responsibly. Georgia must have a balanced budget; therefore, if lawmakers enact this tax break, they should balance it with a $30 million increase in revenue. Or, perhaps, they should cut special interest business tax breaks worth $30 million already in the tax code to offset the lost revenues.

Better yet, lawmakers should tackle the main problem and comprehensively reform the tax system to ensure adequate funds for our public services, improve fairness among taxpayers, ease administration, and increase the state’s financial stability.

By Sarah Beth Gehl. Gehl is the deputy director of the Georgia Budget & Policy Institute, an independent, nonpartisan think tank that analyzes the state budget to inspire informed debate and responsible decision-making. www.GBPI.org.

Testimony for the House

Appropriations Special Subcommittee on HB 307

(a bill to implement the hospital and managed care provider fees included in

Governor Perdue’s proposed FY 2011 budget)

Mr. Chairman, members of the committee — thank you for the opportunity to speak today about the governor’s proposed provider fees and the budget shortfall facing Medicaid.

As we all look at the dire revenue situation facing the state, it is abundantly clear that Georgia needs more revenue to maintain the crucial services provided under the Medicaid and PeachCare programs. Without the provider fees proposed by the governor, the governor has said that DCH would need to implement 16.5 percent cuts to healthcare providers across the Medicaid program — such a cut would no doubt devastate the program.

Such cuts would not be targeted solely at hospitals, but rather would cut rates for doctors, dentists, pharmacists, and other such providers across the state. If providers no longer choose to participate in the Medicaid and PeachCare programs, then Georgians enrolled in these programs will suffer.

It is clear that something must be done, and we’re pleased to see the governor recognize that additional revenues are a better solution than disastrous provider rate cuts. Although revenues are indeed the answer, we echo the comments of others that increasing the tobacco tax by $1 is a superior revenue stream.

The tobacco tax is clearly good public health policy, as the financial costs of smoking-related illness and death are felt by individuals and businesses throughout Georgia in the form of higher private health insurance premiums and significant productivity losses.

Furthermore, revenue is revenue — either of these funding sources can be used to provide state funds to Medicaid that are then matched with federal funds when we spend it. These funds then flow to healthcare providers in communities throughout Georgia.

I also want to take the opportunity to note that although the Medicaid shortfall we’re facing in FY 2011 is significant — the shortfall looming in FY 2012 is even larger. In addition to the $300 million hole that the governor fills with provider rate cuts and provider fees, Georgia will face an additional shortfall of about $750 million as a result of expiring enhanced federal funding from the Recovery Act.

The Georgia Budget & Policy Institute has been advocating for a comprehensive look at the revenue issues facing the state, and the situation before us here — where the choice is between major provider rate cuts or a pair of revenue proposals that many folks dislike, shows the difficulty that lies ahead.

In the end, we agree that the tobacco tax is a better proposal than provider fees to solidify the Medicaid budget in FY 2011 without major cuts, and that doing nothing about revenues in FY 2011 cannot be an option. It is also important to say that neither the provider fees as proposed by the governor, nor an increase in the tobacco tax alone, will solve the long-term shortfall facing Medicaid; it is equally important that we avoid major cuts to the Medicaid program next year that would be felt by providers and patients alike.

Thank you for your time. I am happy to discuss these comments at any time.

Sincerely,

Tim Sweeney

Senior Healthcare Analyst

Sweeney is the senior healthcare analyst for the nonpartisan, independent think tank, the Georgia Budget & Policy Institute. Sweeney analyzes healthcare policies and their impact on the state budget. Read his analysis of the healthcare budgets.

Testimony Before House Small Business Development and Job Creation

Tax Incentives Subcommittee – HB 1023

According to a December analysis by Georgia State University’s Fiscal Research Center, Georgia ranked 46^th in per capita total state and local revenues in FY 2007, the latest available data. Georgia had 10 percent less than the Southeastern average and 20 percent less than the national average in per capital total state and local revenues. To put that in dollar terms, if Georgia raised the same amount as North Carolina (ranked 41^st), state and local governments would have invested an additional $4 billion in public services.

That is where Georgia stands – a state that spends conservatively on our public services – even before the recession started.

Georgia has cut over $2 billion from state agencies since 2009, and things aren’t looking up yet. The revenue numbers released yesterday show an 8.7 percent drop for January and 12.9 percent revenue decline year-to-date. This is not a one-year problem; Governor Perdue projects a $2.6 billion deficit in FY 2012.  House Bill 1023 will exacerbate this problem and cuts will grow deeper – meaning, more cuts to education, public safety, and human services.

States have the difficult task of balancing budgets, even during severe economic downturns. For every lost dollar in revenue from these tax cuts and credits, services must be cut equally. Unlike the federal government, Georgia must have a balanced budget.

Make no mistake – these tax breaks will mean a loss in revenue. The state’s fiscal note last year showed a significant loss of state revenue, even after accounting for the marginal employment growth from certain provisions. The return on investment for the $2400 hiring tax credit was calculated by the state to be only 1.5 percent employment growth, recouping a low 6.5 percent of lost revenue. The high cost of the tax credit ($800 million) and low return on investment stems from the fact that the vast majority of credits will go to employers who would have hired the worker anyway – credit or no credit.

To put that in perspective, the state would gain 2,200 private sector jobs at a cost of $800 million, which equals 16,000 teachers.  As support of the assumptions in the fiscal note, last week this committee heard testimony from Allan Adams of the Small Business Development Center at the University of Georgia.  When asked what the biggest road blocks to hiring were, he mentioned lack of credit from banks and lack of sales, not wages being too high. 

For the capital gains tax cut, the state’s economist last year wrote: “Because of how states tax capital gains, the effect of a cut in Georgia’s tax on capital gains will likely provide little incentive to increase investment in Georgia.” I highly recommend that everyone on this committee read Dr. Heaghney’s policy memo on the capital gains tax cut as he goes into detail about why that cut will not spur significant investment. It will, however, cost $400 million on an annual basis.

Beyond concerns about the immediate fiscal crisis of the recession, Georgia faces a structural deficit. The governor has predicted a $2.6 billion gap in 2012, and the state’s economist predicts a return to 2007 revenue levels after 2014. By passing HB 1023, these deficits will be even larger.

For one final note, I’d like to mention the importance of the Revenue Shortfall Reserve beyond the $500 million trigger in the bill. The Governor used more than $1.4 billion in reserve funds to help balance the state budgets in fiscal years 2008, 2009, and 2010. Moody’s Investor Service in their recent bond rating report stated: “The extent to which the coming fiscal year’s budget allows for reserve rebuilding, through prudent economic assumptions and conservative revenue projections, will be a critical factor to the state’s rating and outlook.”

Over the next 3 to 5 years, the Governor and General Assembly should plan on surpluses totaling between $1.5 billion and $2 billion in order to re-build the RSR to adequate levels. Rating agency concerns as to the adequacy of the RSR should give hesitation to the consideration of tax cut proposals that would make it more difficult to re-build the Revenue Shortfall Reserve.

Thank you for your time. I am happy to discuss these comments at any time.

Sincerely,

Alan Essig

Executive Director

The following editorial was first published in the Atlanta Journal Constitution on February 2, 2010 and then in several other media sources throughout the state.

Georgia Should Raise Its Taxes to Close the Budget Shortfall and Modernize the State

Revenues should be part of a balanced, responsible approach to closing the gap between the growing needs of Georgia’s people and the resources the state has to meet those needs.

Why? Because relying on spending cuts alone hurt struggling families too much today, damage the state’s economy, slow recovery from the recession, and poorly position the state for when prosperity returns.

Georgia’s economy is in crisis. As we face the worst recession in our lifetimes, unemployment continues at record levels. Hundreds of thousands of Georgians have lost their jobs during the past 18 months. Georgians’ applications for unemployment insurance, food stamps, Medicaid, and various social service programs have increased dramatically.

Tens of thousands of jobless men and women have enrolled in our technical schools and universities in order to improve their skills. We cannot ensure that these vital services, which have already faced significant cuts, are available without taking a balanced approach. 

To be clear, this does not mean avoiding budget cuts. We are way past this being an either-or proposition. With a problem this serious, no single response is enough. That means getting beyond the political rhetoric that offers the false hope of sparing education, healthcare, and public safety from cuts if only we “right-size” state government. Of course we should prioritize government services and deliver them more efficiently. But, in the face of multi-billion dollar deficits — caused by record-breaking drops in every state’s revenues, not by overspending — savings through increased efficiencies are unfortunately a drop in the bucket compared to the depth of the problem.

Increasing state revenues will avoid cuts that will severely damage our ability to help those most in need. It will also allow us to continue to invest in the education, transportation, and healthcare infrastructure that is vitally important for Georgia’s current and future economic success.

This need not mean broad-based tax increases, they should be targeted. For instance, Georgia should make a focused effort to collect taxes already owed to the state; close special interest and corporate tax exemptions and loopholes; increase fees (many of which have not changed in over 20 years); increase the cigarette tax to be on par with the majority of states; increase the income tax on those Georgians with the most income; and modernize the sales tax to include the services that reflect today’s economy.

More than thirty states, including most southern states, already chose a balanced approach to deficit reduction through increasing revenues during the past year. North Carolina, our neighbor and chief economic competitor, increased revenues by more than $1 billion in addition to cutting many programs and services. Georgia cannot compete if we unilaterally de-fund state government while our neighbors and competitors continue to invest in their future economic growth.

What do we want the legacy of this recession to be for Georgia? Will it be that we abandoned Georgia families in their most desperate time, choosing inflexible ideology over practical solutions? That we failed to invest in education, transportation, and healthcare, sealing Georgia’s fate as a second-rate economy that offers only limited opportunity to those who want to start a business or raise a family?

Or will our legacy be the prosperity that comes from making decisions that assure the basic economic, health, and safety needs of Georgia families, and making wise investments that allow Georgia to once again lead the region? A balanced approach will take us down that road.

By Alan Essig, Executive Director, Georgia Budget & Policy Institute. The Georgia Budget & Policy Institute is a nonpartisan, nonprofit think tank that rigorously analyzes budget and tax policies, to inspire informed debate and responsible decision-making.

 Published in the Atlanta Journal-Constitution, Savannah Morning News, and other media outlets Dec. 21, 2009

National Health Reform: Expanded Medicaid Is a Bargain for Georgia

Leading congressional health insurance reform proposals include expanding Medicaid, which could not only bring coverage to nearly one million low-income, uninsured Georgians, but would provide at least 90 percent of the funding to do so.

Despite the obvious and significant benefits to the state's economy and its citizens, Gov. Perdue, Lt. Gov. Cagle, and others opposed to reform are arguing that Georgia cannot afford its share of the proposed Medicaid expansion in either the House or Senate proposal.

They claim that expanding Medicaid will cost Georgia more than $2 billion over six or seven years, but they rarely mention the billions in new federal funds that would flow to Georgia's economy during this time.

But their calculations are misleading. The cost on a yearly basis of expanding Medicaid for hundreds of thousands of uninsured citizens with little access to coverage is not only affordable, but is a bargain for Georgia.

The Georgia government's own estimate of the House proposal forecasts $93 million in additional state costs the first year (2013). This equates to an increase of less than five percent of Georgia's existing Medicaid budget and less than 1 percent of the overall state budget.

In addition, these state costs would be accompanied by hundreds of millions in new federal funds flowing into Georgia each and every year, contributing to the state's healthcare sector and local economies.

Over time, these costs would increase as the state's economy and population grows. As more people enroll, and as medical costs increase with inflation, the Georgia government estimates that costs could reach $500 million a year by 2019. However, this number must be put into perspective as well. Relative to the overall state budget a decade from now, these costs will remain a small percentage and surely will be

manageable.

Although Georgians across the income spectrum have seen their access to

employer-sponsored coverage decline in recent years, low-income families

have been most affected.

A mere one-quarter of Georgians in families with incomes below twice the poverty level ($36,600 for a family of three) have employer coverage, compared to 76.6 percent for families with income above this threshold.

As a result, low-income individuals and families in Georgia are far more likely to be uninsured (35.9 percent) than their higher income counterparts (10.9 percent). In total, nearly 1.7 million non-elderly Georgians (nearly one in five) lacked health insurance in 2007-2008.

Those opposed to expanding health insurance coverage should also consider the likely effects on Georgia's uninsured children and adults if they remain uninsured. Uninsured people have less access to timely medical care, worse health outcomes, and are more likely to die prematurely than their insured counterparts.

There is plenty of time for Georgia's leaders to ensure the state has adequate funds to pay what the federal government does not so that we reduce our high number of uninsured citizens. Both proposals give states several years to comply with the new Medicaid eligibility standards, and both provide full federal funding for the first two to three years of implementation.

Our elected leaders should be tackling Georgians' growing needs, not posturing against national reform. Georgia's uninsured rate is tenth in the nation, approximately one in seven people lived in poverty in 2008, and our job loss rate is fifth in the nation. Vulnerable groups are hit hardest during recessions, and low-income workers are losing

employer-sponsored health insurance faster than others.

Rather than using misleading multi-year figures to argue that the state cannot afford to expand Medicaid coverage to its struggling citizens, Georgia's leaders should realize that we cannot afford to lose out on this incredible opportunity to insure its neediest citizens and bring hundreds of millions of dollars into the state’s economy annually.

Sweeney is the senior healthcare analyst for the nonpartisan, independent think tank, the Georgia Budget & Policy Institute. Sweeney analyzes healthcare policies and their impact on the state budget. Read his analysis of the proposed expansion at www.GBPI.org.