To hard-working Georgians, it may come as a surprise that the state taxes many of them pay on their wages aren’t going toward local schools, roads, health care or public safety —they’re going right back into their employer’s pockets. Georgia is one of only 16 states that divert public money in this way to subsidize private businesses, according to a new report from Good Jobs First, an independent nonprofit based in Washington, D.C.
Referred to as a personal income tax (PIT) diversion, the scheme works like this: State lawmakers design a tax credit that allows certain companies, often as a reward for locating or remaining in Georgia, to keep a portion of their employees’ withholding taxes. Rather than being returned to the state as usual for public investments, these wages serve as a direct subsidy to the company itself and are used however its executives see fit. Georgia has four such tax breaks: the Jobs, Quality Jobs, Mega Jobs/New Facility, and Research and Development Tax Credits – which together cost the state nearly $50 million a year.
These costly handouts are almost always enacted in the name of job creation and economic growth, but the argument that state tax credits create jobs is highly dubious. The truth is that most subsidies are claimed by companies that would have created or retained jobs regardless of the credit, meaning the public money simply provides them a windfall.
But what makes the PIT diversion scheme different – and worse – is that the windfall comes directly from the employees of the companies that benefit. In effect, they’re paying a tax to their boss. Few, if any, workers are even aware of the transaction, because no state law requires they be informed.
Having workers subsidize their own company is a stark line that few states have chosen to cross. The scheme misleads employees about where their tax dollars go, and it diverts revenue that should be used to strengthen the state as a whole. By allowing the tax diversions, Georgia lawmakers favor a few select companies while shifting the burden onto workers and other employers, forcing them to pay higher taxes, suffer poorer public services, or both.
Regardless of how one feels about jobs tax credits in general, PIT diversions are a dangerous precedent that should be ended. Georgia should strongly consider eliminating them altogether, or at the very least requiring that workers at affected companies be informed that their tax dollars are being kept by the boss.