ATLANTA (AP) — On Wednesday, Georgia lawmakers initiated a comprehensive evaluation of state tax breaks, aiming to potentially reduce them in order to lower the overall income tax rate. However, there are officials who argue that business tax breaks play a vital role in attracting industries to the state.
The Joint Tax Credit Review Panel, a long-awaited initiative, was championed by Chuck Hufstetler, a Republican and the Chairman of the Senate Finance Committee, who has occasionally expressed skepticism towards tax breaks. The outcome of this review may lead to the introduction of legislation next year.
Lt. Gov. Burt Jones, also a Republican, has expressed support for the review process, as he believes that scaling back certain tax breaks could contribute to his objective of reducing or eliminating the state income tax.
During a phone interview on Wednesday, Jones emphasized his strong support for providing tax breaks to every company and family. He stated, “To achieve this, it is crucial to continually evaluate our policies and make necessary adjustments when they no longer appear rational.”
However, there are staunch defenders for nearly every tax break, even including provisions as specific as exempting commercial fishermen from paying sales tax on crab bait. The expansive hearing room where the review panel convened was crowded with numerous lobbyists, diligently representing their clients and their preferred incentives.
The testimonies presented during the hearing illustrated the stark divergence of opinions on the matter. Jeffrey Dorfman, the state economist, aligned with the perspective held by many economists, advocating for the use of incentives in a targeted and selective manner.
Dorfman expressed, “Tax credits should be utilized sparingly and exclusively for specific opportunities. Once a vital industry has been attracted, it is unnecessary to subsidize suppliers or subsequent investments, right? If there was an initial loss, we should focus on reaping the benefits later.”
Contrarily, Andrew Capezutto, the chief administrative officer and general counsel of the Department of Economic Development, responsible for business recruitment, emphasized the value of a consistent and predictable incentive system for businesses. He argued that Georgia’s incentives are not exceptionally generous compared to those offered by neighboring states.
Capezutto added, “I consistently receive feedback from site selection consultants and companies indicating that Georgia often falls behind, ranking in the middle or towards the lower end, as we are frequently outbid by neighboring states.”
His statement highlighted the competitive nature of attracting businesses and the need for Georgia to enhance its incentives in order to remain competitive with other states.
The review process began with in-depth examinations of several tax breaks. According to Robert Buschman from Georgia State University’s Fiscal Research Center, the most challenging aspect of such a review is determining whether businesses would have made investments even without the tax incentives.
“It’s difficult to ascertain whether the behaviors being subsidized are a direct result of the tax incentives or if they would have occurred regardless,” Buschman explained.
Among the eight business tax incentives assessed, evaluators concluded that the sales tax exemption for computer equipment purchases and the state’s research and development tax credit were the least influential in persuading businesses to make investments they would otherwise have overlooked. Evaluators estimated that only 5 cents of every dollar claimed through the research and development tax credit were genuinely motivated by the tax credit itself.
However, it is unclear whether these reports will necessarily lead to the elimination of any incentives.
“I don’t think anyone is aiming to eliminate any specific tax credit,” stated Blake Tillery, a Vidalia Republican and Chairman of the Senate Appropriations Committee.
Hufstetler expressed his desire for more independent evaluation of the numbers reported by state agencies, including the Department of Economic Development. He remarked, “There’s an inherent bias in finding positive outcomes when relying on self-reported numbers.”
He also suggested implementing a system where lawmakers would have to consider thoroughly vetted projections before adopting any new incentives. Currently, lawmakers often rely on projections presented by companies that would benefit from the incentives.