Another View: Georgia incentives are bad business

By Phred Barnet

Giving a tax incentive to a business to encourage economic development sounds like a great idea, but it is not. Tax breaks for businesses are little more than corporate welfare at the expense of hard-working Georgians. They amount to subsidies favoring a select few businesses.

Proponents of tax breaks for new businesses argue the increase in jobs will make up for the reduction in revenue, but tax breaks for businesses rarely pay for themselves and often end up costing the state a great deal of money. That shortfall must be paid for by Georgia’s taxpaying citizens and businesses which don’t have the benefit of that break.

Giving a business a tax incentive to move here may help that business in the short-term, but in the long-term the people who pay for that tax break also happen to be the employees and the customers of that company. Plus, it sends the wrong message to existing Georgia firms: “If you stay in the state, we will use your tax dollars to subsidize your competitors.”

In June, after the North Carolina Legislature approved a $46 million tax break designed to induce Apple Inc. to build data warehouses in the Tar Heel State, Scott Hodge, president of the Washington-based Tax Foundation, had this response: “Too many legislators confuse targeted business incentives with policies that truly create a better business climate.”

They are not. They only provide an excuse for lawmakers to avoid real tax reform. Tax systems should not be used to pick winners and losers or micromanage the economy.

In Georgia, a new law gives the entertainment industry tax credits for up to 30 percent of production and post-production expenditures. Proponents argue that if Georgia does not do so, it will lose out to other states. This mentality leads to bidding wars that end up offering more and more incentives.

At best, these incentives can create temporary increases in economic activity. Yet these temporary increases do not pay for the costs of the programs themselves. There is no logic in Georgia subsidizing the enormous salaries of Hollywood actors, directors and producers while many of our own residents struggle to get by in this tough economy.

The most equitable tax incentive that Georgia could offer would be to cut taxes on individuals as well as corporations to make Georgia more attractive to individuals and businesses – both old and new. This would lead to investment and job creation, encourage more businesses to move to Georgia and send the right message to Georgia’s current businesses.

Phred Barnet is a summer intern at the Georgia Public Policy Foundation.