Georgia should tally cost, benefit of business tax breaks

The Georgia Budget and Policy Institute’s Executive Director Alan Essig says the state should take a more business-like approach to decide whether corporate tax breaks are worthwhile in an Atlanta Journal-Constitution op-ed.

As published in the Atlanta-Journal Constitution.

Georgia gives out hundreds of millions of dollars in business tax breaks every year with little rhyme or reason.  The state needs to create an unbiased and fact-based system to  weigh the costs and benefits of tax incentives and exemptions. Gov. Nathan Deal’s ongoing Georgia Competitiveness Initiative is not set up to meet those objective standards.

The initiative, created in 2011 is a joint effort of the state and the Georgia Chamber of Commerce. It is led by about two dozen people from across the state, nearly all representing for-profit corporate interests. Their charge is to recommend ways to strengthen the business climate in Georgia. Members of the initiative met in Dahlonega and Tifton last month to hear presentations from industry representatives angling for state tax breaks. The members will deliver recommendations to the governor to help him choose which tax breaks to support.

It is fine for members of the state chamber to push for tax breaks they think will strengthen the state’s economy. But it is clearly a conflict when the system gives business leaders so much clout in a decision-making process that relies on playing hunches.

Georgia needs a review process based on facts and impartial analysis, not one that rests largely on the testimony of industry advocates and their lobbyists.  An arms-length review should answer such questions as: How many jobs will be filled by Georgians versus transplants recruited from outside Georgia? Will tax breaks generate new jobs, or just subsidize existing plans that would take place without them? And how many jobs would be lost from budget cuts required to pay for lost tax revenue?  These questions demand detailed analysis by qualified experts, not just guesswork by parties that may stand to benefit from the tax breaks they recommend.

There is a better way.  Rhode Island recently passed legislation that provides a great tax break evaluation model for Georgia to adopt. Rhode Island now requires reviews every three years of all tax subsidy programs by the state’s Office of Revenue Analysis. The reviews measure the benefit and cost of each subsidy, including its impact on the state’s overall budget and economy.  The governor’s budget proposal then must make a recommendation to continue the tax break, make changes or end the program. Budget hearings in the Legislature provide a forum to discuss and compare the results and costs of tax breaks alongside other types of state spending.

Rhode Island is leading the way for states to evaluate economic subsidies, according to the Pew Center on the States. Georgia should follow that lead.

Georgia’s tax code is past due for a thorough review. State tax payers effectively spend nearly $300 million each year on tax credits for economic development, with only anecdotal evidence of a return. Delegating authority to an unelected group of executives representing corporate interests is the wrong answer to the problem. Proposed tax breaks should be subject to an accountable, transparent, fact-based examination. It is a better way for the state to do business

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2 thoughts on “Georgia should tally cost, benefit of business tax breaks”

  1. Alan Essig is right on the mark.

    In light of Georgia’s economic insecurity rating, it’s ironic that “Site Selection,” a pro-development magazine, has declared that the state has the nation’s “best climate for business.”

    According to a report published in 2011 and updated last year, Georgia is among the least economically secure of all states, and has had greater insecurity than the national average for the past decade (“Economic Insecurity Across the American States,” Economic Security Index). Likewise, Georgia is among the ten states having the worst income distribution – meaning greater extremes between the poor and wealthy, and a greater portion of total wealth owned by a privileged few. (Institute on Taxation and Economic Policy).

    Those contradictions underscore a troubling trend in how government programs conduct and evaluate economic development. A misleading implication is that “business-friendly” policies create improved economic security for the laborforce. But when worker income is in decline as corporate profits thrive and executive pay soars, it’s evident that a harmful imbalance has corrupted the purpose of economic programs.

    Studies consistently reveal that real wages of workers (both professional and blue-collar) have stagnated and their tangible wealth has decreased over the past three decades. During the same period, chief-executive incomes have grown by a factor of seven relative to average wages. Recovery after the 2008 economic debacle has enabled big-business profits to rise, and the U.S. stock market has reached record highs. But for the average worker, prospects remain bleak.

    Cuts in government support for the working poor, coupled with reductions in state allocations for environmental protection, healthcare, and education have resulted in a depletion of services that are vital to the quality of life in our communities.

    Georgia’s leaders have advanced the notion that business growth should be the primary goal of our state, yet evidence indicates that this devious path has transferred wealth from individuals to corporations and from the middle-class to the already-wealthy.

  2. This is great information. I have often asked legislators, how Delta can receive a legislated Billion dollar tax break while the poorest Counties in the State can only afford to send their children to school for 150 days? In addition, have you had the opportuntity to investigate the extent to which the Agricultural Tax Exemptions are impacting the revenue from ESPLOST’s across the rural areas of the State?

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