Human Behavior

There is definitely no logic to human behavior.

Is Georgia getting its money’s worth from tax breaks?

[The following commentary was written by Alan Essig, director of the Georgia Budget & Policy Institute.]

Georgia is investing tens of millions of dollars in business tax incentives and subsidies without any idea as to the impact on jobs.  In tight budget times, it’s imperative that all state expenditures whether through the state budget or through the tax code, are held accountable for results.  The General Assembly passed legislation requiring the Governor to produce a Tax Expenditure Report each year; however, the current law doesn’t require cost/benefit analysis of individual tax breaks.  This means we know what tax breaks cost us; however, we have no idea if we are getting our money’s worth.

Two new national reports highlight this problem.

Good Jobs First, which grades state economic development incentive programs, recently released Money for Something: Job Creation and Job Quality Standards in State Economic Development Subsidy Programs. The study evaluates how well (or poorly) states perform based on the following:

  • whether they require recipient companies to create jobs in exchange for job subsidies,
  • whether the subsidized companies pay their workers decent wages, and
  • whether the companies provide their workers healthcare coverage or other employee benefits.

In most of our major subsidy programs, Georgia requires job creation, retention, and training.  Georgia, however, didn’t score as well in wage and healthcare requirements. We need to make sure the results of these incentive programs match the legislative intent. The question policy makers can’t answer right now is, where are the jobs?

The Citizens for Tax Justice and the Institute on Taxation and Economic Policy report, Corporate Tax Dodging in the Fifty States, 2008-2010, highlights that 265 companies nationwide paid state income taxes equal to only 3.1% of their U.S. profits between 2008 and 2010, compared to the average statutory state corporate tax rate of 6.2%. The report highlighted five multi-national Georgia-based companies that paid state income taxes equal to only 2.9% of their U.S. profits between 2008 and 2010.These low income tax payments result from corporations taking advantage of various tax breaks and overall favorable tax treatment. Again, are these favorable tax policies resulting in job creation?  We have no idea.

To create meaningful tax policies and effective programs that create jobs and grow the economy, the first step is to judge the effectiveness of current policies.  Georgia’s basic tax expenditure report, which quantifies the cost of tax breaks, was a good policy step, but more needs to be done.  The law needs to be amended to require real analysis of the effectiveness of tax breaks and economic development programs.  Are these current policies nothing more than corporate welfare? We need policies that will have a positive economic impact.

Georgia cannot afford to invest tens of millions of dollars into stimulating “economic development” and at the end of the day there are still no new jobs.

Tags: Alan Essig , Georgia Budget & Policy Institute , job creation , tax breaks

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