What are they doing with our tax dollars?
Taxes are not a popular topic, but they are the way we fund things that we cannot afford as individuals, no matter how wealthy: things like highways, or clean air. None of us are excited about paying taxes, but we understand the importance of collective funding for the common good. At the same time, no one advocates for wasteful spending, or a bloated, inefficient government. And we certainly expect our elected representatives to be good stewards of tax dollars, and to spend money in wise and thoughtful ways to meet our collective needs.
State governments sometimes waive taxes to elicit certain corporate behavior. To receive these special tax reductions, called credits, corporations may choose, for example to build a new plant or create new jobs. However, in practice too many of these tax credits can be bad investments for states. Often the promised jobs or other investments do not fully materialize. And in many cases, a state has no review mechanism for actually tracking what the return on tax credits actually is.
The Georgia legislature is currently considering a number of bills that will authorize tax credits to various companies. Most of these bills are sailing through the legislature and will probably be signed into law. Despite their popularity with our elected officials and corporations, these types of bills are controversial and of questionable effectiveness. Tax credit bills that have passed one legislative chamber and crossed over to the other would create almost $1 billion in credits over the next five years if passed into law, according to a report from the Georgia Budget &Policy Institute (GPBI). This is $1 billion that would not come into the state coffers. We are forgoing money that could be used to raise teacher pay, fund full medicaid expansion or any number of other worthy causes.
The most notable of these tax giveaways, HB 587 proposes to grant $185 million in tax credits to only six Georgia corporations, one of which is Lockheed. This special type of tax credit, known nationally at CAPCO, is a speculative, state-sponsored quasi-venture capital investment strategy that has been discredited in other states. According to GPBI, this bill provides a special provision for defense contractors that “would weaken current eligibility requirements to allow credits to be claimed under lower investment and job thresholds, far below what is allowed under the current CAPCO law which was passed in 2017.”
Some legislators have tried for several sessions to pass legislation to have a way to evaluate and possibly sunset tax credits that are not beneficial. SB 148 would create a process to improve transparency in Georgia’s tax code by establishing a committee to launch a full evaluation of Georgia’s tax laws beginning this summer. But its passage is not assured.
Senator Nan Orrock, who serves on both the Senate’s Appropriations and Finance Committees, says, “Some legislative leaders refuse every opportunity to do a serious review of Georgia's generous tax credits. And yet every session, new requests are granted for additional tax credits. The CAPCO bill is a boondoggle for some wealthy people that has been reversed already in several states as an out-and-out scam. We need to hold the line against it and instead convince the House to pass SB 148 which would launch an independent review of our tax credits, our tax structure, our workforce needs and more. It's just common sense and has bipartisan support.”
One big problem with this CAPCO bill and other tax credit bills is that most legislators have little or no understanding of the fiscal consequences of these bills. GPBI reports that of the 24 tax credit bills that have passed one chamber, only nine are accompanied by a fiscal note prepared by the legislative budget staff. These types of tax credit bills are supposed to provide some measurable benefit to the health of our state’s economy, not merely reduce corporate taxes.
“Unfortunately, at a time when it is more important than ever to rebalance our tax code to make it more equitable, we’re seeing repeated attempts to prioritize special-interest tax breaks over funding programs that serve the people,” says Danny Kanso, senior policy analysis at GPBI.
“Lawmakers in the state House have failed to pass bipartisan legislation to allow the state to finally evaluate the $10 billion in tax breaks we hand out each year but continue to advance risky tax legislation that would give hundreds of millions in new tax breaks to wealthy corporations,” Kanso continues. “These bills come at high cost to the state and risk the loss of a significant amount of the federal funding the state is set to receive.”
This loss of federal funding may result from a newly enacted reduction in the state standard deduction for taxpayers which has recently passed and been signed into law by the governor. This law will reduce personal state income taxes by about $46 to $63 for most taxpayers. It is expected to reduce Georgia tax receipts by $631 million over the next five years. However, the American Rescue Plan (the $1.9 trillion federal COVID relief law) has a provision that federal money coming to a state will be reduced by any tax reductions a state might enact. Thus, any tax credits issued (or increases in the standard deduction) could reduce the same amount in federal money, doubling the amount lost to our state treasury.
Our elected officials must consider the fiscal impact of tax credits, in the long and short terms, as well as the consequences of even a politically popular increase in the standard deduction. We all, individuals and corporations, need to pay our fair share to fund the common good and curb draining our state coffers for dubious benefit.