By the time the General Assembly finishes its session this week, it will have handed out tax breaks worth more than $250 million over the next two years — despite Gov. Nathan Deal’s public admonition to slow the traditional legislative giveaway.
The election-year tax breaks would benefit noble causes, like food banks; corporate titans, like UPS; the well-heeled, like customers of luxury jet-maker Gulfstream; and the innovative, like video game developers.
The annual parade of special-interest measures makes it harder for Senate leaders to cut or eliminate state income taxes for all Georgians, something that Lt. Gov. Casey Cagle, Senate President Pro Tem David Shafer, R-Duluth, and others have long campaigned on.
While senators are voting to bestow special tax breaks, they’ve also pushed one constitutional amendment capping state income taxes and filed another that would phase them out. Reconciling those actions is becoming increasingly difficult.
“A big part of it has to be getting rid of these sales tax breaks, treating everybody the same and getting to a flat and fair and transparent system,” said Sen. Josh McKoon, R-Columbus, who sponsored a proposed constitutional amendment to phase out the state income tax. “It absolutely makes it more difficult because every time you build in a tax break for special interests, you create a lobby that’s against tax reform.”
Ornaments on the Christmas tree
Lawmakers are scheduled to end their annual session Thursday. Before the final gavel falls, they will vote on a host of tax-break proposals. Often several tax breaks are tacked onto an unrelated, relatively benign bill. The newly ornamented bill is then described as a “Christmas tree.”
It wasn’t supposed to be the same this year. Deal revived a dormant “competitiveness” panel last year partly to exert more control over the frenzy of costly tax proposals that inevitably pop up each session. The panel, made up of business executives and lobbyists, heard testimony at several meetings from business owners and analysts.
Such panels can often be dismissed as little more than background noise, but this one took on added significance when Deal cited the panel as a reason to veto legislation that would have extended the sales tax exemption for food banks.
Food-bank backers cried foul. Only a few weeks earlier, Deal had signed legislation temporarily extending tax breaks that benefited customers of Gulfstream, which contributed $10,100 to the governor’s re-election campaign two months later.
Deal’s panel delivered two priorities to lawmakers before the session’s start: restoring that sales tax exemption for food banks and extending the sale tax break on construction materials for projects deemed to be of “regional significance,” such as the new Falcons stadium.
Both are in a bill — sponsored by Deal’s floor leaders — that won final approval last week. Other tax breaks not listed as priorities were in it as well. A campaign-friendly sales tax holiday for back-to-school shoppers was included, as was a $25 million tax deal for video game developers pushed by a group that also contributed to Deal’s campaign.
That proposal is expected to cost state and local governments about $240 million over the next two years, according t0 one state report. A flurry of other proposals on the line before the session’s end would cost millions more.
‘I’m hopeful we can keep it clean’
Coastal lawmakers want to make permanent tax breaks for customers of companies like Gulfstream, citing the thousands of staffers the firms employ. Rep. Ben Harbin, R-Evans, a patron of Georgia Regents University in Augusta, won House passage of a bill giving income tax deductions to doctors taking part in a locally administered program.
Rural lawmakers, led by Rep. Jay Powell, R-Camilla, pushed a measure through the House to exempt materials used in construction of wood-pellet fuel production and processing plants from sales taxes. That would cost state and local governments $2.8 million, but Powell said it would create hundreds of jobs in poor rural parts of Georgia.
Other last-minute proposals not cleared by the panel will inevitably spring up.
Each puts Deal in a bind. Because he vetoed legislation last year on grounds that it needs to be reviewed by the competitiveness panel, he could be branded a hypocrite for not doing the same this year.
“I always hope I never have to veto things like that,” Deal said in an interview. “But if there are too many things on it that are unacceptable I won’t have any choice, even though I might like a good bit that is there. But I’m hopeful this year we can keep it as clean as possible.”
Panel member: ‘like no one is listening’
Some members of the competitiveness panel chafed at the Legislature’s actions. Republican John Barge, an ex-officio member who is challenging Deal in the GOP primary, worried that the panel’s findings were being ignored.
“When you put together a committee and people are volunteering their time and expertise and we don’t follow the recommendations, at some point people wonder what’s the point. And that’s what I see happening here,” said Barge. “The recommendations are made, we’ve got legislation that’s doing the reverse. It sounds like no one is listening.”
Backing $100 million to $200 million or more each year in tax breaks is about more than politicians picking winners and losers.
It also drains the state treasury at a time when school and health care programs struggle to recover from years of spending cuts, and conservatives yearn to remake the tax structure to one based less on income and more on consumption.
The state collected about $8.75 billion from individual income taxes last year, about 51 percent of all tax revenue it took in. Cutting or eliminating the income tax would mean finding big money to replace the lost revenue. That is more difficult when lawmakers allow select companies or individuals to cut what they pay into the system, critics of the breaks argue.
Supporters say many of the tax breaks support or create jobs. Those employees then pay into the tax system. But lawmakers typically use only anecdotal evidence presented by backers of the tax breaks to justify their votes.
“On all of these, even those we think are justified, we really ought to have a sunset in place so the Legislature is regularly reviewing them,” McKoon said. “We absolutely need to get away from these sort of special-interest tax breaks that apply usually to narrow interests.”
‘Death by a thousand cuts approach’
There are signs that some lawmakers are bucking tradition. The Senate Finance Committee last week narrowly approved the legislation making permanent the sales tax exemption that helps Gulfstream customers — a proposal that in past years would have sailed through.
One critic, freshman Republican Sen. Hunter Hill of Smyrna, warned that a more comprehensive tax overhaul would remain a distant dream “if all we do is shoot buckshot through the sales tax code.”
It took a vote by the committee’s chair, Judson Hill, to break a 3-3 logjam and clear the legislation. The Marietta Republican said it was about “attracting business to the state.”
That’s what people like Wesley Tharpe, a tax analyst for the Georgia Budget and Policy Institute, are used to hearing.
“What they are doing this year is mostly business as usual,” he said. “They are extending business tax breaks and creating new ones. They are not really going in a new direction or taking a more deliberate approach.”
In a world of finite resources, that kind of business as usual makes it hard to think big.
“When it comes to the impact on state revenue, it really does complicate other policy objectives, whether it’s to cut income tax rates or whether it’s investing more in education,” Tharpe said. “It’s death by a thousand cuts approach to tax policy.”
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