As legislators begin grappling this week with another round of budget cuts and a proposal to extend a controversial tax on hospital revenues, some groups are calling for the closing of tax loopholes.
Tax collections so far this fiscal year are coming in below the projected rate, prompting Deal to order all state agencies — except K-12 education — to trim 3 percent from their spending. At the same time, costs for Medicaid are more than $300 million over budget already this year, not counting a nearly $700 million hole that would be left in the budget if the hospital tax isn’t extended.
Legislative budget writers started requiring governors in recent years to submit a document called the Tax Expenditure Report that estimates how much each tax break leaves in the private economy and out of the government’s use.
“Although not direct government expenditures, tax expenditures represent an allocation of government resources in the form of taxes that could have been collected (and appropriated) if not for their preferential tax treatment,” State Auditor Greg Griffin wrote in his letter delivering the report.
The largest tax breaks is the so-called personal exemption from individual income taxes representing $1 billion. Exemptions for retirement income, $697 million, Social Security, $140 million, and credit for taxes paid to other states, $185 million, are also among the largest ways private Georgians keep from forking more over to the government.
Exemptions from the sales tax also benefit individuals, including $509 million on food, $423 million for prescriptions, $171 million on lottery tickets and $8 million on school lunches. The sales-tax holidays that temporarily exempt school supplies save another $41 million.
There are many more itemized tax breaks for various business interests, but for smaller amounts each. For instance, the motion-picture industry saves film production companies $86 million. Deferral of capital-construction costs for shipping companies amounts to less than $1 million.
Some business tax breaks are due to expire this year. A break on seed, fertilizer and farm chemicals that ended Jan. 1 totaled $150 in the last fiscal year. The exemption of certain machinery used in the manufacturing of consumer items expired the same time and amounted to $175 million last year.
One due to expire in June is the sales tax exemption for airplane engine-repair parts worth $7 million last year. It’s being pushed by companies like Gulfstream Aerospace which argues jobs would be lost if airplane customers took their business to states that don’t charge the tax.
Alan Essig, director of the Georgia Budget and Policy Institute think tank, is one of the sharpest critics of repeated budget cuts rather than tax increases.
“Its emphasis on more cuts to vital services threatens Georgia’s ability to create jobs and build a strong economy,” he warns in a recent blog post. “If this budget goes into effect as proposed July 1, it will cut several hundred million dollars on top of the billions in cuts made over the past five years.”