Lawmakers acknowledge it’s hard to mend problems with tax breaks

ATLANTA -- Tim Echols drives his electric car almost for free.

Like thousands of other Georgians, he knows about a pair of federal and state tax credits that he used to lease a Nissan Leaf.

“My lease is $269 per month after Nissan kept the federal tax credit,” Echols said. “The (state) tax credit is amortized at $208 per month, so my net cost is $61.”

He still has to pay for insurance, taxes and the electric bill to plug in his car at home.

But for Echols, a member of the Public Service Commission who has no authority over state tax policy, an electric vehicle is a deal.

Canvassing other Leaf owners, he said he thinks about eight of 10 of them would not have bought the car without the credit.

But there may be fewer buyers soon. The electric vehicle, or EV, tax credit, which is worth up to $5,000 per car, is getting a treatment few tax breaks get: intense legislative scrutiny.

Call them tax incentives, exclusions, loopholes, carve-outs or breaks, but there are nearly 200 exceptions in Georgia tax law that individuals and corporations can claim, according to the 2016 state Tax Expenditure Report. Authored by Georgia State University economists, the report estimates the value of each tax for the fiscal year that begins in July.

Some preferential treatment is spread around. Groceries and prescriptions are exempt from state sales taxes. So are lottery tickets. Everyone gets a personal exemption on state income taxes, as they do on retirement income, together worth about $1.6 billion.

Others are more narrow. Private schools need not pay taxes on many things they buy. And no sales tax is collectible on art or artifacts bought by museums.

The state breaks will add up to about $8 billion for the fiscal year that begins in July, according to the nonprofit Georgia Budget and Policy Institute, an Atlanta think-tank.

And the Legislature is trying to decide which to keep and which to toss, with EV credits the most fought-over so far.

CARVE-OUT VERSUS INCENTIVE

It’s not like the Legislature doesn’t want money per se: Republican leadership has been working for months to find $1.5 billion for road and bridge building and repair.

And they have looked into a simpler tax code. In 2010, with much fanfare, they created the so-called “Tax Council,” a blue-ribbon panel that was supposed to make tax recommendations.

But the council’s pitch to sunset most sales tax exemptions -- including the one for groceries -- went nowhere. Neither did the idea of taxing services, a growing part of the economy.

“You’re going to tax beauty parlors and barber shops where everybody talks and complains? Elected officials didn’t like that, so that didn’t go anywhere,” said Kelly McCutchen, president and CEO of the nonprofit Georgia Public Policy Foundation, another Atlanta think-tank.

“Every dollar has a constituency,” said state Rep. Chuck Martin, R-Alpharetta, author of a bill that would repeal the EV credit. A House subcommittee last week voted down his bill.

Tax exemptions do “potentially pick winners and losers,” said state Rep. Allen Peake, R-Macon, a former CPA who is now vice chairman of the tax-writing House Ways and Means Committee. “But ... fundamentally I would always rather see money in our citizens’ pockets than in the state treasury, particularly if it’s motivated by investment.”

He authored a tax break for rehabilitating historic buildings, saying that rebuilding dilapidated buildings and blighted areas can revive an entire community.

But that’s kind of just a gut feeling if there’s no data. Even the Georgia State University report notes that its numbers are estimates and subject to many variables.

Measurement has proved to be a stumper.

“Tax incentives from a tax policy standpoint need to be tested for effectiveness and timeliness,” said House Majority Leader Larry O’Neal, R-Bonaire.

Take the film production tax credit, for example. It was first set up in 2005 and worth about $108 million to companies last year.

“Before we did what we did with the film tax credit, we had no film industry here,” O’Neal said.

But now the film economy is spreading, not just with cameras on actors, but related things, such as tourists checking out locations from AMC’s “The Walking Dead” in Atlanta.

That tax credit has helped plant an industry, he said, but it’s important to check out tax credits from time to time.

TAX CREDITS MIXED WITH POLITICS

Tax credits aren’t just a matter of math. Politics mixes in, too.

“I think it’s clear that enacting tax exemptions is a sort of business-as-usual type tactic and approach regardless of which party is in power,” said Wesley Tharpe, a policy analyst at the Georgia Budget and Policy Institute.

Once they are enacted, he said, some go for years or even decades without review.

McCutchen said it’s good tax policy to exempt things from taxation that businesses use for manufacturing, such as gasoline, rather than have obscure taxes drive up the cost of goods.

“When you’re picking just one industry or company to give a tax break, well that’s when you’re starting to pick winners and losers,” he said.

And that’s no good, he said.

For example, there’s a break on jet fuel tax that applies only to Delta Air Lines, often referred to casually as the “Delta tax exemption.” It’s been worth about $22 million annually for the past three years.

McCutchen said that’s an example of picking a winner.

“You really ought to exempt all aviation fuel evenly,” he said, as it’s something a business uses in order to be able to do business.

O’Neal, when he was chairman of the Ways and Means Committee, required every new tax exemption to expire in two years if it wasn’t reviewed and renewed. But that was his own rule, not a law that binds state government.

So while government spending is debated every year in Georgia’s budget, tax preferences are not. They’re much stickier.

Martin, the lawmaker who wants to repeal the electric vehicle tax credit, said some tax exemptions are good policy. But the EV tax credit’s time is up, he said.

Dozens of other lawmakers signed his bill. Though the Income Tax Subcommittee of the Ways and Means Committee was cool to Martin’s pitch, the idea of cutting off the tax credit appears in other bills.

The annual state budget, which will be worth about $22 billion for the fiscal year beginning in July, is now under review in the state House.

This story was originally published February 21, 2015 at 8:54 PM with the headline "Lawmakers acknowledge it’s hard to mend problems with tax breaks ."