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Wednesday, April 20, 2011 - 6:25am

Tax Breaks’ Benefit Unclear

The 2012 state budget includes tax breaks for manufacturers of airplane parts, developers, and Delta Air Lines. But it’s unclear if they will save or create jobs.

In the case of Delta, the General Assembly extended the partial sales tax exemption on jet fuel because the company employs 27,000 people in Georgia.

Other breaks were designed to spur new investment. Developers who spend $1 million or more to build tourist venues will benefit from a new sales tax exemption.

But some economists say there’s no proof the exemptions work. Thomas Lauth is the Dean of the School of Public and International Affairs at the University of Georgia in Athens.

“What we don’t know very much about is if the incentives in the form of tax breaks are necessary to bring risk capital to Georgia and whether completed projects will eventually produce jobs and robust revenue growth that offsets or exceeds the loss of the revenue you forgo in the short-run,” he said.

Supporters of the tax breaks say they help Georgia compete with other Southeastern states that have lower taxes. Rep. Ron Stephens of Savannah said Georgia can't take a chance that Delta may move elsewhere. And he said the other breaks will encourage the owners of private jets to bring them here for repairs. He said Georgia is competing against other states in the region that don't tax airplane parts.

“Everyone understands that if we want to continue the growth of this particular industry, we have to level the playing field,” Stephens said.

But there was extended debate on the tax breaks in both chambers before they passed. And Lauth of UGA says that's because the issue is quite subjective. He said there's simply no way of knowing if Delta, for example, is staying here because of those breaks.

“I think it’s as much an ideological belief as an empirically-verifiable fact that tax breaks are essential to economic development," Lauth said. "It’s quite possible Georgia’s overall low tax environment would make it an attractive destination for developers even without tax breaks.”

Lauth said the state needs to determine how many jobs the tax breaks produced, and how much additional property tax revenue developments bring in. He says current tax breaks depend too much on how much a particular industry lobbies state legislators.

Sara Beth Gehl of the Georgia Budget and Policy Institute says the state legislature should establish a commission to vet the longterm effect of the tax breaks. She said this is especially so with the newest tax break because visitors to the resort or amusement park would still have to pay sales tax but a private developer would pocket some of it.

“Typically that sales tax would come to the state or local governments and pay for things like roads and schools and healthcare and instead it would go to pay the construction costs of a development,” she said on the last day of the legislative session.