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The state’s improving economy has Gov. Nathan Deal’s Republican opponents making ambitious promises for new tax cuts if they’re elected. The governor, however, has been much more tight-lipped on tax breaks as he prepares for a potential high-profile November matchup.
Deal discovered after his 2010 election how hard it was to live up to a pledge to reduce the state’s corporate income tax rate when that plan was swept up in a larger overhaul that ultimately failed. He’s since backed a more piecemeal approach to tax cuts that has frustrated some conservative critics.
State School Superintendent John Barge wants to expand tax credits for existing businesses rather using them to entice new ones. And former Dalton Mayor David Pennington backs a far more sweeping plan to eliminate the state income tax in Georgia, which would cost the state billions.
The two primary opponents, who face Deal in a May 20 election, have not specified how they would pay for the tax cuts aside from a pledge to reduce spending and shift resources. But both contend that Georgia’s economy is in a more perilous position than strong state revenue reports suggest.
“Can you imagine the next recession?” said Pennington, who says Georgia trails the rest of the region partly because it still has an income tax. “We are behind in Georgia.”
Awaiting the winner is Democrat Jason Carter, who has branded himself a fiscal conservative and vows to carve out more specifics for how tax dollars are spent. His top initiative involves creating a separate fund for education dollars that he said would be walled off from political meddling.
The governor, though, has tacked toward a more upbeat economic message. He trumpets the more than 235,000 new jobs he says he helped create since taking office as validation that a mix of tax breaks, business incentives and job-training programs he helped engineer is taking root.
“I believe that the growth of the new jobs we’re seeing are directly related to many of the policy changes that we put in place,” he said at a campaign event Monday in Americus. “It’s a rate of growth many, many states are jealous of. And we’re pleased we’re leading the pack.”
A scaled-back tax vision
The governor’s economic plan for his 2010 bid centered on a proposal to cut the state’s corporate income tax from a flat 6 percent rate to 4 percent. He also pledged to exempt small-business startups from paying any corporate income taxes during their first 10 years in business.
During that campaign, Deal said lowering the corporate tax rate would spur expansion of existing companies and persuade other businesses to move to Georgia. Those new firms, he said, would in turn offset the lost corporate tax rate by generating more business — and more tax revenue.
It was wrapped up in a much broader push to rewrite the state’s tax code that failed to pass amid infighting among Republicans and staunch opposition from Democrats who warned it would increase the tax burden on middle-class families. Since then, he has taken a more cautious and patchwork approach to tax cuts.
He signed into law a popular sales tax break for farmers and companies that produce at least $2,500 in agricultural services or products a year and a repeal of the state sales tax on energy used in manufacturing that Deal credits for enticing recent carpet company expansions. He also backed eliminating annual property taxes on cars in favor of a one-time sales tax.
With election-year politicking looming, Deal appointed a panel of business executives and lobbyists last year to vet each tax proposal before the Legislature, partly over concerns that lawmakers could come up with a parade of breaks. He also backed a constitutional amendment to cap the income tax rate at 6 percent.
The more than $240 million in tax breaks he signed into law in April include new credits for food banks, back-to-school shoppers, customers of the jet maker Gulfstream and video game producers. But these tax breaks make it harder for lawmakers to pursue a more comprehensive overhaul of the state’s tax code.
Improving finances
The election comes amid signs that Georgia has escaped the last vestiges of the recession that forced lawmakers to cut spending and scale back programs. Deal signed into law the biggest spending plan approved by lawmakers since 2008, and it offers goodies such as extra funding for pay raises for thousands of teachers.
State tax collections are up almost 5 percent this fiscal year compared with the last one. And that comes even after a dip in April when tax collections fell nearly $50 million, or about 3 percent, from the same time period last year. The drop, which broke a string of 16 straight months of increased revenue, is attributed largely to a one-time tax shift in April 2013.
Barge, whose education-first platform involves increasing school funding, said his economic development plan centers on reducing dropout rates and improving job training. He wants to review the practice of giving corporations costly tax breaks and vows to target other government “inefficiencies.”
Yet he openly admits that the examples of questionable spending he’s so far identified, such as similar workforce development programs run by different state agencies, are but a small share of the state budget. And beyond a vow not to raise taxes or tap the state’s rainy day fund, he hasn’t detailed exactly how he would increase education funding.
For Pennington, the state’s growing coffers are a sign the state is collecting too much in taxes. He wants to immediately cut the income tax rate by a third and eventually repeal it by shifting to a “fair tax” system. Anything else, he said, is “tinkering around the edges.”
Shaving 2 percentage points off the corporate income tax rate would cost more than $2 billion, roughly 10 percent of the state’s $20.8 billion budget. Pennington said he can save state money by halting more construction projects and decentralizing the state’s education apparatus.
Even so, eliminating the state’s entire bond construction program and spending by the Department of Education’s central office wouldn’t raise half that total. Still, Pennington said he’ll find more examples of unnecessary programs once in office.
“You don’t think you can cut a government by a little more than 10 percent? In Dalton we cut it by more than 20 percent,” he said. “I’ll be like a kid in a candy store looking for expenses to cut.”
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