Tax Justice Digest stories about Georgia

Middle-income Georgians are still waiting for their Governor to decide whether to increase their property taxes and use the revenue to slash capital gains taxes for the rich. Legislation making both of these changes (HB 481 and HB 261) continues to sit on Governor Sonny Perdue's's desk even as it's roundly criticized by opinion leaders, including the Atlanta Journal Constitution and the Macon Telegraph. 

The editorial boards of both papers cite ITEP's recent report on the legislation. The analysis describes the impact across income groups of eliminating a property tax relief program in combination with cutting taxes on capital gains income. The Atlanta Journal Constitution points out, "So who will see a boon from a capital gains tax break? A very wealthy few. People in the top 10 percent of the income spectrum own about 70 percent of taxable stocks. In its analysis of the capital gains tax break, the Washington-based Institute on Taxation and Economic Policy concluded that 77 percent of the tax cut would go to the very richest 1 percent of Georgians."

A new report from the Georgia Budget and Policy Institute highlights the shocking decision on the part of Georgia legislators to actually cut taxes in the face of an immense budget deficit.  According to the report's analysis of official state fiscal notes, if the Governor signs all tax bills passed by the legislature, state revenues will fall by $116 million in fiscal 2010, and by over $1.2 billion in fiscal 2012.

The bill with the biggest cost includes a pricey and regressive exclusion for 50% of all long-term capital gains income, analyzed by ITEP earlier this month.  In addition, a $1,800 tax credit for home buyers, as well as a dozen other tax cuts would dig the state deeper into debt if approved by the Governor.

The Center on Budget and Policy Priorities recently released a very useful report summarizing tax expenditure reporting practices in the states, as well as methods for improving a typical state's tax expenditure report.  For those unfamiliar with the term, a "tax expenditure" is essentially a special tax break designed to encourage a particular activity or reward a particular group of taxpayers.  Although tax expenditures can in some cases be an effective means of accomplishing worthwhile goals, they are also frequently enacted only to satisfy a particular political constituency, or to allow policymakers to "take action" on an issue while simultaneously being able to reap the political benefits associated with cutting taxes.

Tax expenditure reports are the primary means by which states (and the federal government) keep track of these provisions.  Unfortunately, most if not all of these reports are plagued by a variety of inadequacies, such as failing to consider entire groups of tax expenditures, or not providing frequent and accurate revenue estimates for these often costly provisions.  Shockingly, the CBPP found that nine states publish no tax expenditure report at all.  Those nine states Alabama, Alaska, Georgia, Indiana, Nevada, New Jersey, New Mexico, South Dakota, and Wyoming, undoubtedly have the most work to do on this issue.  All states, however, have substantial room for improvement in their tax expenditure reporting practices.

For a brief overview of tax expenditure reports and the tax expenditure concept more generally, check out this ITEP Policy Brief.

With summer in full swing and state fiscal years largely underway, most state legislators probably think that they're done with the heavy lifting, at least policy-wise, for the year.  Yet, due to the poor condition of the nation's economy, tax revenue in a number of states is falling well short of expectations, reopening budget gaps that policymakers thought they had closed.  For instance, the Georgia Budget and Policy Institute this week issued a report that estimates that the deficit for the current fiscal year (FY09) could reach as much as $2 billion, due to weak sales and personal income tax collections. The report calls for legislators to return in September to address the shortfall.  As the Atlanta Journal Constitution reports, Senate Appropriations Chairman Jack Hill has already indicated that a variety of options for resolving any potential deficit will be considered, including undoing recent tax cuts.

In New York, where the fiscal year begins in April, the problem may be more prospective than retrospective, but that didn't stop Governor David Paterson from calling this week for a special legislative session to address the Empire State's burgeoning budget deficit.  According to the latest analysis from the state's budget office, the expected budget gap for FY 2010 has risen from $5 billion to $6.4 billion in the span of three months, with a three-year deficit now exceeding $26 billion.  With his request for legislative action, particularly with the entire Legislature up for election this November, the Governor would appear to be a paragon of fiscal responsibility, except that he is simultaneously demanding a property tax cap that would make matters worse.  For more on alternatives to the Governor's property tax plan and on the state's fiscal condition generally, visit the Fiscal Policy Institute's web site.

As we mentioned last week, this is the season for fiscally irresponsible sales tax holidays to purportedly give relief to working people on their back-to-school shopping. Sales tax holidays are a bad idea for the states' budgets and tax-payers alike. Low-income families probably cannot time their purchases to take advantage of a sales tax holiday, and it can be an administrative headache for retailers and government. Sales tax holidays are also poorly targeted to low-income individuals compared to other policy solutions such as low-income tax credits.

Now another group of states is ready to forgo needed tax revenue in exchange for a few dollars off the purchase price of various goods. These states include Alabama, Iowa, Missouri, North Carolina, Tennessee, and Virginia among others with holidays scheduled Friday through Sunday.

Meanwhile, a Birmingham News editorial points out that the sales tax holiday is a "gimmick" that has allowed state lawmakers to divert attention from their outrageously regressive tax code. Alabama is one of only two states that doesn't exempt or provide a low-income credit for its sales tax on groceries. If that were done, Alabama consumers would save far more money than they do on a three-day sales tax holiday (an average family of four would save about seven times as much). But instead of exempting groceries from sales taxes or raising the state's second-lowest in the nation income tax threshold, lawmakers pretend to help low-income Alabamians with a few tax-free shopping days a year.

Georgia's sales tax holiday began on Thursday and exempts articles of clothing costing less than $100, personal computers cheaper than $1500, and school supplies under $20. This week, the Atlanta Journal-Constitution mentioned some of the more amusing exemptions covered by that state's sales tax holiday. These exemptions include corsets, bow ties and bowling shoes. As the author noted, guys headed to their first day back in school "might combine the bow ties and bowling shoes, then just head straight for the restroom to collect their free swirlie." The article also mentions ski suits, highly unlikely to be big sellers in Georgia, and adult diapers, seemingly unrelated to the average family's back-to-school needs. Georgia lawmakers may want to revise their list of exemptions to concentrate on discounting necessities, or better yet, end this farce once and for all.

Conservative commentators frequently depict Hollywood as ridden with leftists, but the reality is that, when it comes to tax policy, the movie industry is no different from any other.  Take recent legislative activity in Michigan and Georgia, for example.  Michigan Governor Jennifer Granholm is on the verge of signing a bill that would, among other things, provide a refundable tax credit equal to 42 percent – 42 percent! – of a film production’s costs. The Georgia Senate has adopted a measure – also expected to be signed into law – that will more than double that state’s current film production credit.

Yet, as an important new report from the Massachusetts Department of Revenue (DoR) documents, states may receive precious little in return for these enormous investments.  According to the report, Massachusetts will lose upwards of $140 million between 2006 and 2008 due to its film tax credit, but may receive only about $20 million in new revenue from the economic activity associated with the credit.  What’s more, as the report notes, “any estimate of the net economic and tax revenue impact of tax incentives needs to take into account the reduction in state government spending” associated with such credits.  In such tight budgetary times, that “reduction in government spending” is sure to occur if policymakers keep trying to lure the latest blockbuster to their state.