Governor’s Tax Break Review Process Needs Rethinking

State tax breaks should be evaluated on a regular basis to ensure they’re efficiently achieving Georgia’s goals, but a new review process arranged at the behest of Gov. Nathan Deal is not the right way to go about it.

The new review process is taking place under the guise of something called the Georgia Competitiveness Initiative, which the governor created shortly after taking office in January 2011. A joint initiative between the state and the Georgia Chamber of Commerce, the initiative is carried out by about two dozen appointed business leaders charged with recommending ways to strengthen business in Georgia. It sat dormant since January 2012, when it released what was billed as its final report.

On Monday, the unelected council of business leaders is scheduled to reassemble in Atlanta with a new mandate:  to determine if a list of Georgia tax breaks for businesses and nonprofits should remain on the books. This is a completely misguided and inappropriate role for the council. Here is why:

  • First, the tax breaks under review are mostly those that benefit the council’s private sector peers. Georgia’s tax credits for films and gaming, for example, are highly lucrative to both direct recipients of the credit and third-party investors. Tax preferences for research and technology enhance the bottom line of numerous companies throughout the state and the beneficiaries are hidden from taxpayers.

What are the chances the council votes against these business-breaks? Probably far less than the prospect it will find fault with a potential tax benefit for charities, which the governor inexplicably vetoed earlier this year.

  • Second, the council is ill-equipped to judge the effectiveness of tax breaks. Determining if a special tax preference efficiently achieves the state’s goals raises  complex questions. How many jobs go to in-state residents versus transplants recruited from out of state? Are tax breaks generating new jobs at all, or just subsidizing companies’ already laid plans? And how many jobs are lost due to the budget cuts required to pay for lost tax revenue?

These questions demand detailed analysis by qualified experts on the subject, not just guesswork by parties that may have an interest in the outcome. In Massachusetts, for example, independent analysts found that while an existing tax credit program created around 1,600 jobs, the budget cuts required to pay for it eliminated nearly the same amount

It is certainly true that Georgia’s Swiss cheese tax code should be given a thorough review. State taxpayers spend nearly $300 million each year on tax credits for economic development, with almost no knowledge of what they’re getting in return.

But handing over authority to an unelected business council is the wrong way to fix that problem. Georgia’s lawmakers should ignore the Competitiveness Council’s recommendations and instead create a more valid process for tracking tax breaks, such as one recently enacted in Rhode Island. More closely reviewing special tax benefits should be done with an accountable, transparent, fact-based approach. The governor’s current path doesn’t fit the bill.

 

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