Earlier this week, the Georgia General Assembly’s Joint Tax Credit Review Panel held its first meeting. The panel, led by the chairmen of the Senate Finance Committee and the House Ways and Means Committee, looks to review Georgia’s various tax credit programs.
Tax credits play a unique role in Georgia’s economy, and this review comes as the state considers cutting the state income tax rate to a more competitive level with neighboring states. Some lawmakers believe the goal of lowering taxes without cutting state revenues can be achieved through reducing Georgia’s landscape of tax credits, which amounts to billions of dollars.
The largest and most well-known of these programs is the film tax credit. It’s hardly a secret that Georgia has become a destination for movie-making, as the film and television industry has exploded here in the past decade. However, the film credit alone cost the state nearly $900 million last year.
Add that to the $294 million provided for the low-income housing tax credit, $194 million for research and development, $85 million for manufacturing and the many other tax breaks the state gives out, and the temptation to look here first to cut costs becomes apparent.
Indeed, it’s been argued that many of Georgia’s tax credits have run their course. One way tax credits are economically unique is that they theoretically assume a loss in the short term for the sake of long-term benefit – that benefit being sustained industry growth, long-term revenue, spillover or a non-economic benefit.
This is a point raised by state economist Jeffrey Dorfman, who argued before the panel that a tax credit that benefits an industry that would not have been profitable without the credit is a bad investment and harmful to the economy. Conversely, the film tax credit offers a good example of the theoretical lifespan of a credit as an economic tool.
While the credit may have helped the industry grow initially, and perhaps maintain growth, Georgia’s film industry is now “mature,” as Dorfman puts it. He contrasts it with Georgia’s tax breaks offered to Rivian Automotive’s electric vehicle plant. Rivian is part of a large, but locally new, industry that offers long-term benefits such as future investors. Since the film industry is more firmly established in the state, he said, legislators now have an opportunity to “claim victory” from a successful policy initiative and either cap or end the tax credit.
While Dorfman advises using serious caution generally when offering tax breaks, Georgia’s current economic situation makes that caution even more necessary. With record-low unemployment levels, tax credits are probably not a necessary economic tool for bringing in jobs right now.
Dorfman emphasizes that ending or limiting a tax credit is by no means an admission of being wrong on policy, but rather an acceptance that the situation has changed.
Another economic factor that complicates tax credits is the difficulty in determining effectiveness. Robert Buschman, Director of the Fiscal Research Center at Georgia State University, points out that a common misconception in analyzing tax credits is attributing all economic activity arising from the incentivized behavior to the credits’ implementation. Dorfman also notes that research suggests that 80-95% of growth that comes with tax incentives would have happened without them.
The panel also featured various department representatives, some of whom spoke to the developmental benefits of tax credits. Andrew Capezzuto, the chief administrative officer of the Georgia Department of Economic Development, highlighted the success of Georgia’s film tax credit in growing that industry and building infrastructure. Christopher Nunn, commissioner of the Georgia Department of Community Affairs, mentioned that tax credits are an effective tool in increasing the supply of multifamily housing as well as senior and workforce housing.
The review of Georgia tax credits looks to conclude before the beginning of the 2024 legislative session. Whether heavily implied or outright stated, there is plenty of interest under the Gold Dome in capping or ending some of Georgia’s tax credits. This is based on both a belief that some credits have run their natural course in the context of Georgia’s economic situation and outright skepticism of their utility as a policy tool.
