We need tax reform, not endless tax credits

In today’s morning reads, I noted a Tax Foundation study on the state business climates. Mike Klein notes over at the Georgia Public Policy Foundation that Georgia comes in at a depressing ranking, 37th overall. Klein contends that this a sign that Georgia needs a tax code overhaul to make it more attractive to businesses and industries.

He’s absolutely right. But there is there is a right way and a wrong way to go about it. Many states have resorted to offering up tax credits for various industries as a way to bring business to their economies. Georgia is no different. Many legislators have pointed to the boom in filming in the state thanks to tax credits, often citing AMC’s popular show, The Walking Dead, as an example of their success.

State Rep. Ron Stephens, who has apparently never met a tax credit he didn’t like, is pushing now for similar treatment for the music industry (I can’t find a story on it, but heard the story on WSB Radio during my drive into work this morning). He believes that by providing incentives to the industry that Atlanta could become the “new Nashville.”

My wife is involved in the local music scene, booking shows for bands that come through the area, and I played in a band for six years. I’ll catch the occasional local show with her, whether it’s one she has booked or to see an act that I like. So I’m sympathetic to the idea of seeing Atlanta’s influence grow in the music industry. But if you want to make Georgia’s economy more competitive, the last thing you should be doing is picking what industries are going to be winners and losers by distorting the market with tax credits, which is ostensibly an admission that we don’t already have a business friendly climate.

The legislature should, as Klein so rightly explains, focus on a tax structure that make any industry or business considering relocation believe that they can come to Georgia and prosper. This is the difference in being “pro-market” and “pro-business,” a distinction many legislators don’t seem to understand.

12 comments

  1. benevolus says:

    A couple of things about this:
    Atlanta already IS big in the music industry. Maybe it’s not the kind of music Sen. Stephens listens to, but Atlanta is probably near the center of the hip hop universe.

    Secondly, why is it that in this study the most productive states are the least favorable for business tax climate? If anything, this study shows that business taxes are only a small part of what makes a state competitive and productive.

  2. CobbGOPer says:

    Notice that we rank #40 in individual income tax… Because the assembly is always too busy giving tax credits to any industry that gives them a wink and a smile, while us lowly individual taxpayers rarely get a break.

    Take the hint and just get rid of the state income tax already as part of larger tax reform.

  3. Max Power says:

    I know I’m talking to myself but taxes aren’t what’s keeping businesses from coming to Georgia.

  4. NoTeabagging says:

    In defense of the Film Tax Incentive, this program benefits thousands of Georgia residents and businesses. Compare this to say the Kia investment which brought a limited number of jobs to Georgia residents.

    The film industry employs thousands of tax paying workers across the state. Many people have migrated to film jobs from dead industries such as construction. We now have construction carpenters building sets on movies. Other related businesses, such as Cofer Bros. Lumber nearly went out of business when new construction tanked. Now they supply lumber and materials to a large number of film sets.

    The film industry uses many retail sources to buy everyday items: office supplies, food, clothing, furniture, building supplies, medical supplies. They rent offices, hotel rooms, furniture, apartments and other locations for staff and shooting locations. They use local security, cleaning, and support services. They also benefit local restaurants by feeding staff and crew and on-set caterers buy lots of food from local grocers.

    Many local businesses and unique service providers benefit from film business. Those businesses and employees are paying taxes to the state.

    From Georgia .org Industries page, “To further demonstrate the growth of this industry in Georgia, figures from FY ’11 show the following (updated 11/11):

    • Television networks, Hollywood studios, production companies and independent

    producers invested more than $689.3 million in Georgia

    • The economic impact of this investment was $2.4 billion

    • Exponential growth in infrastructure including the location or expansion of 4 full service

    sound stages.”
    http://www.georgia.org/GeorgiaIndustries/Entertainment/FilmTV/Pages/default.aspx

    http://www.georgiatrend.com/November-2011/Ka-Ching-Crunching-The-Movie-Numbers/

      • Charlie says:

        The film tax credit is one I support, and the reasoning is this: It’s a highly variable industry that has low fixed costs/investment, and thus, can easily move from state to state based on the best tax structure. If we are going to target tax incentives, this is how they should be measured.

        Instead, a couple of years ago Georgia gave hundreds of millions in tax credits to timber farmers. Those pine trees aren’t going anywhere, unless the land is developed, at which case the land would be producing even more tax revenue/acre. These are the kind of incentives that represent wealth transfers but do little to increase business or investment activity to the state.

    • benevolus says:

      Just make sure to take a credit card! A lot of those production companies dissolve when the filming is done.

      • NoTeabagging says:

        @benevelous. True, however we are getting a higher percentage of reputable production companies coming here and returning for repeat business. There are more locals here hired in key positions that are not going to stiff a local company on a rental or purchase fee.

  5. Three Jack says:

    Good column Jason.

    Regarding the music industry, if the legislature decriminalized marijuana, it would probably have a more profound impact than tax incentives.

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