Georgia Taxes Are Still a Weak Link in State's Business Climate

November 04, 2016

Georgia Scores Well on Business Climate, But Taxes Are Still a Weak Link

Site Selection magazine recently chose Georgia as the best business climate ranking in the country. Policymakers in the state welcomed the announcement, but they should keep in mind the need to address structural problems with Georgia's tax code.

Georgia currently relies heavily on targeted business tax breaks, putting firms without access to those incentives at a competitive disadvantage. As a result, the state ranks 36th in the Tax Foundation’s State Business Tax Climate Index.

To truly improve the business climate for everyone, Georgia policymakers need to broaden the tax base and lower tax rates to create a level playing field. Tax Foundation policy analyst Morgan Scarboro explains in more detail in a new blog post:

“…[T]ax credits are not, and at best can only provide a temporary band-aid to an otherwise undesirable tax structure.

One particularly large tax credit in Georgia is the film tax incentive program, designed to grow the state’s ‘Y’allywood’ film industry. The program cost the state budget a pretty penny—to the tune of $925 million over a five-year period—and that kind of hole means rates on other business activity have to be higher to make budget ends meet. Research has shown that film tax credits are a net loss for states and generate less than 30 cents for every $1 of spending.”

Scarboro also notes that Georgia’s corporate income tax rate is higher than most neighboring states, and faces competition as North Carolina lowers its rate to 3 percent next January (giving it the lowest corporate rate of any state that levies the tax). Using tax credits to offset this cost leads to inequities, as illustrated by the Tax Foundation’s Location Matters study (this study was used as one of the variables in Site Selection’s methodology). The graph below illustrates how large of a gap exists in effective tax rates for different types of businesses operating in Georgia.

“Last year the Georgia Senate advanced a substantial tax overhaul that lowered tax rates and broadened tax bases, but the bill floundered in the House,” Scarboro says. “This next coming session, policymakers have an opportunity to resume the tax reform conversation in earnest, and they should seize it.”

 Georgia business tax rates


Media Contact:
John Buhl
Media Relations Manager
Tax Foundation
202-464-5120 (office)

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