Tax Bill Aims To Unwind A Decade of Prosperity

This week’s Courier Herald column:

When part of a governing majority, members of the political party in charge get both credit and blame for the state of current events.  Georgia’s Republicans have run for re-election several times sharing the success stories of economic transformation in the aftermath of the great recession. 

Many that have taken credit for success now want to undo many of the elements that underpin the “number one state to do business” slogan.  A concise look at how fundamental the change in direction some desire is included in the Senate Committee Substitute to HB 1035. 

The bill is a wholesale repeal of tax credits and exemptions.  In some cases, it eliminates economic incentives used to secure corporate headquarters and manufacturing plants.  In others, it adds sales taxes to items never before taxed.  In total, it repeals Georgia’s “business friendly” slogan.

The state’s strategy following the banking and real estate collapse of the great recession wasn’t to restore those industries and their dominance to the state’s economy.  Instead, it was to use Georgia’s inherent strengths to diversify the state’s economy with new economic engines.

Twelve years ago the idea of Georgia Tech jumping over the Downtown Connector was more dream than reality.  Today, technology square is some of the hottest real estate in the state, brimming with high wage technology jobs.  Symbolizing the transition from yesterday’s economy to today’s, the Bank of America tower is now its own technology hub.

The Senate version of HB 1035 would cut Georgia’s tax credit for Research and Development, a major expense in technology and bioscience companies lured to the state in the last decade.  It would also add a sales tax to software downloads.  With the move to a cloud based economy, this is a major disincentive for both consumers and Georgia’s software companies alike.

Some of the exemptions repealed have obvious populist roots.  The bill would require auto manufacturers and distributors to pay Georgia’s 6.6% Title Ad Valorem Tax on every car used by the manufacturer as a demonstrator or by employees as a perk. 

Given that these cars are often used only for a few months before they are then sent to dealers for sale (and proper taxation), the exemption falls in line with Georgia’s (former?) philosophy of not taxing inputs within the manufacturing and distribution process.  The change could turn an employee recruitment perk into an expense where the associate could pay 13% to 20% of the value of their company car per year just in taxes, assuming use of 2 to 3 cars per year.

At issue here is more than the tax collected.  It’s the trust in promises made by Georgia’s leaders and our Department of Economic Development.  This incentive was integral to landing Mercedes Benz’s US headquarters, with their building in Sandy Springs still having that new car smell.  Porsche is also a beneficiary, adding to the populist resentment over the exemption.  

Kia, one of Georgia’s largest manufacturers, would be equally impacted.  That’s usually what happens when class warfare is engaged.  When you aim for the luxury goods, you hit the average Joe just as hard.

Such is the case by repealing the sales tax exemption for mega yacht repairs.  This exemption has made it possible to employ Georgians on the coast to repair yachts that would otherwise never stop in Georgia.  If we repeal this exemption the yachts never have to stop here again, but the Georgians currently working on them will have to find work elsewhere.

A proposal to reduce taxes on equipment used in rural broadband deployments to make Georgia competitive with states like North Carolina has languished for years.  Instead of following through on this, the bill quixotically takes six sections to repeal other incentives and credits to the manufacturing and telecommunications industry, making broadband deployment even more expensive in Georgia.

Republicans in Georgia have spent the last decade touting their policies for high-wage job growth and the tangible results that have followed. It seems amazingly short-sighted to change those policies now – in response to a state-induced economic closure that is largely over – at the exact time employment across all industries needs to be incentivized, not penalized.