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Tax cuts aren't a magic solution for state's economic downturn

Posted: January 29, 2012 - 1:00am

Back in March 2005, I sat in the press gallery of the Georgia Senate reporting on the debate over a bill to give tax breaks to major corporations that amounted to nearly $1 billion over a 10-year period.

I listened as a state senator from Gainesville named Casey Cagle assured his colleagues that this tax break measure was going to be the greatest thing for Georgia since the invention of the cotton gin.

“It’s pro-jobs legislation,” said Cagle, who’s now the lieutenant governor. “It will ensure we have jobs for the future. There’s no loss in revenue to the state of Georgia.”

That bill passed and was signed into law. During the past decade, legislators have approved and governors have signed many similar bills to give tax breaks to such entities as Delta Air Lines, Gulfstream, Coca-Cola, Aflac, Rubbermaid, and developers of “tourist attractions,” among many others.

I was able to watch the debate on most of these bills. Over and over again, I heard the same arguments from our elected representatives: these tax cuts were going to “create jobs” and “grow the economy” and bring in so much new business that the state wouldn’t really lose any revenues.

How did things work out in the real world with all of those assurances? Not very well. If there’s one thing we should have learned from the experiences of the past few years, it is that tax cuts are not the formula for job creation.

Let’s look at some numbers. For the month of December, Georgia’s jobless rate was 9.7 percent. The national unemployment rate was considerably lower at 8.5 percent, and that has been the case for a long time. For the past 53 months in a row – nearly four and a half years – Georgia’s monthly unemployment rate has been higher than the national rate.

Obviously, every state has struggled to deal with the worst economic downturn since the Great Depression. You would expect Georgia to have a high unemployment rate, which it does. But with all of those jobs that the tax breaks were supposedly going to create, you would also expect Georgia to be doing a little better than the national unemployment rate. Instead, we’re doing worse.

The belief that tax cuts are a magic elixir that will generate jobs and turbocharge the economy is one that apparently will never die among our elected leaders.

In the opening days of the 2012 General Assembly session, it seems as if every legislator has memorized the talking point, “we’ve got to cut taxes to jump-start the economy.” The latest proposal is to eliminate the sales tax on energy used in manufacturing, which would amount to an estimated $150 million for Georgia’s businesses. Gov. Nathan Deal said elimination of the energy tax is one of his top priorities and will “vastly improve the competitive position of our producers.”

I wish it were that easy. Georgia needs thousands of new jobs because our economy has been in such a deep slump. It would be fantastic if these jobs could be created simply by adopting another batch of tax breaks. Despite all the cuts that lawmakers keep passing, however, our employment record is still much worse than the national average.

The outlook is not completely gloomy. There were signs in recent months that the economy in both Georgia and the nation may be getting a littler perkier.

The number of people seeking unemployment benefits nationally has dropped to the lowest weekly number since April 2008. The decline is seen as a sign that the job market is strengthening.

In December, American employers added 200,000 jobs, which was the sixth straight month in which the economy added at least 100,000 jobs. The national unemployment rate of 8.5 percent is at a three-year low.

In Georgia, there were also some positive indicators as the unemployment rate declined by a small percentage in October, November and December. Our sales tax collections indicate that consumers may be willing to spend a little more money.

It is interesting to note that Georgia’s improving economic numbers were recorded during a three-month period when the Legislature was not in session – and did not pass a single tax cut.

(Tom Crawford is editor of The Georgia Report, an internet news service at gareport.com.)

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Comments (2)

Craig Spinks

Tax cuts

Tax cuts, like compensatory and "pump-priming" spending increases, take time to work.

I may well be biased but our state's poor K-12 educational achievement hurts us in our efforts to recruit new businesses( particularly high-tech, high-wage/-salary ones) and to keep current firms in Georgia.

Dr. Craig Spinks/ Georgians for Educational Excellence

John Rice Sr.

Throw in decades of free

Throw in decades of free college education and being an anti-union state we should have the lowest unemployment in the country, but we don’t and neither does SC which has similar policies. We give these companies huge incentives to locate here and they in turn hold the state and communities hostage at the taxpayers expense.

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