Georgia will forego about $8 billion in the upcoming 2016 budget year due to dozens of credits, deductions and other tax breaks enacted over the years by state lawmakers. That’s the big news in our latest analysis of Georgia’s January 2015 tax expenditure report, released along with Gov. Nathan Deal’s proposed budget. As advocates, legislators and interested observers continue to focus on Georgia’s spending priorities this year, it’s worth understanding how much the state also fails to collect.
Georgia’s annual tax expenditure report estimates how much Georgia’s broad array of special tax exemptions will cost the state treasury. The dense, 150-plus page report includes individual cost estimates for most tax breaks, although adequate data do not exist for some of them. GBPI analyzes the individual estimates, applies some reasonable assumptions and adds them up to derive the $8 billion total estimate.
That is big money in a state where the governor is proposing a $21.8 billion budget for next year and where lawmakers continue to shortchange funding for education, transportation, health care and other services. Every dollar the state chooses not to collect in taxes is a dollar lawmakers aren’t using to improve Georgia’s schools, fix its roads or invest in other needs critical to economic growth.
About two-thirds of the money is lost to sales tax exemptions, while the rest is lost to special carve-outs in the state’s personal income tax, corporate income tax and other levies, such as Georgia’s new car tax system. Some of these tax exemptions are sound policy. Groceries and prescription drugs are exempted from Georgia’s sales tax to prevent state taxes from unduly harming poor families and the middle class, for example. Some tax breaks for businesses are sound policy too, including sales tax exemptions for machinery, electricity and certain business inputs.
But other tax breaks are likely ineffective or outdated. The problem is that it’s hard for Georgia lawmakers or observers to tell the good from the bad because the state lacks a system that determines if tax breaks are achieving desired goals at a reasonable cost. State investments in schools, hospitals and other public services come up for renewal in the Legislature each year, but tax breaks do not. Most of exemptions remain buried in the tax code for years, even decades, without thorough review.
There is a better way. Georgia could create a system to periodically analyze these programs to shed light on which ones deliver a good return on investment for taxpayers. The system would flag the tax breaks to cut or eliminate, as well as the ones to keep, or even expand. Oregon, North Carolina, Rhode Island and Florida are among the divergent states with accountability systems in place.
Georgia’s tax breaks take a big bite out of the state’s potential revenues. That loss and the need for more tax exemption review should be part of the debate as lawmakers negotiate the governor’s proposed 2016 budget. Georgia could spend more for schools, hospitals, roads and the other ingredients of future success if it stopped losing money through questionable tax breaks.