Perdue vetoes capital gains tax break
May 12, 2009 at 12:22 pm by Scott Henry in News
Among the many crazy things to happen on the last night of the General Assembly was the passage of HB 481, a Republican-backed, home-grown economic stimulus bill offered as a response to the federal spending plan being pushed by Pres. Obama.
In its early form, the House bill’s centerpiece was a tax credit for employers who make a point of hiring laid-off workers. But in the waning hours of the session, it somehow morphed into a billion-dollar capital gains tax break. That’s the sort of sweeping policy change that typically undergoes several days, if not weeks, of debate and discussion, as happened with the large corporate tax cut that passed a few years back.
But in this case, lawmakers voted to blow an estimated billion-dollar hole in the state budget almost as an afterthought: “While we’re at it… ” Every Republican reflexively voted in favor of the tax cut because, well, that’s what Republicans do, isn’t it? If you’d taken an extra-long smoke break, you’d have missed the whole shebang.
Just after the vote, I asked Sarah Beth Gehl, deputy director of the Georgia Budget and Policy Institute, if she was worried about the impact the action would have on balancing future state budgets. I expected a fiscal policy wonk like Gehl to be upset over such a rash move by lawmakers, but she shrugged her shoulders.
“The governor tends to be much more financially prudent than legislators,” she said. “I’m confident he’ll veto the bill.”
She was right, of course. Late yesterday, Sonny stomped that sucker flat. Here’s a snippet of his rationale:
During a period of growth in our economy, the budget may be able to absorb tax cuts that result in short term revenue reductions but provide long term economic benefits. We are not, however, experiencing a growing economy at this point. Accordingly, the current budget environment — where revenues are continuing to decline and not expected to recover in the near term — the short-term revenue reduction resulting from large tax cuts cannot be sustained in a manner consistent with the budgets passed by the General Assembly.
His fellow Republicans — especially those running for higher office — claim to be appalled by the governor’s veto. But I’m guessing that, privately, some of them are relieved that there was a grown-up around to clean up their mess.
UPDATE: Moments ago, the GBPI released its own statement about the veto:
“Governor Perdue chose the fiscally conservative path and vetoed House Bill 481, preventing changes to Georgia’s tax code from eroding state revenues by $1.5 billion over the next three years, beginning July 1, and costing $438 million each year thereafter,” said Alan Essig, GBPI’s executive director.
“The governor’s economists know their numbers. Governor Perdue saw the worse-than-expected revenue figures for April and chose not to increase Georgia’s worsening deficit,” said Essig. Revenue collections through the first 10 months of the current fiscal year (2009) are down by 9.5 percent; however, the budget is based on a revenue decline of 6.8 percent.
“Governor Perdue has been a good financial steward of the state. He has reduced waste and now has risen above special interest pressure that ignores vital services the state must provide,” Essig said.
The governor and General Assembly already cut state agency budgets by $1.6 billion when it closed a $3.3 billion deficit for FY 2010. Now, due to worse than expected revenues, Georgia could face an additional budget shortfall of several hundred million dollars for FY 2010 (beginning July 1), which would require further cuts.
May 12th, 2009 at 12:45 pm
Really I’m just confused. From the tone of this article, Scott, you seem outraged that a political party could pass a bill that is fiscally irresponsible.
But – and I’m guessing here – I’m sure you’re a huge proponent of the Obama administration’s trillion-dollar deficit. That’s the definition of fiscally irresponsible, but you still called him the “coolest president since JFK.”
Could it be – and I’m guessing again – that you support Democratic fiscal irresponsibility at the national level, but are hyper-critical of Republican fiscal irresponsibility at the state level?
May 12th, 2009 at 2:51 pm
It makes sense that Adam is confused because one can’t compare stimulus from the federal gov to the state government. GA must balance it’s budget each year. so if the bill’s sponsors wanted to cut taxes from the wealthiest 15%, they should have also cut public services that billion dollars. whereas the federal government works more like a business, for instance, if you have a landscaping business and want to branch into big homes, you would borrow money to buy a rider mower and pay it off with your new contracts. the federal gov is shoring up local governments, which the state can’t do very easily. now, GA could have raised the cigarette tax, gotten rid of the investment waiver, and many other things but the republican senate and house didn’t. the sponsors are a bunch of wolves in sheeps’ clothing. if they really wanted to help Georgians by passing tax cuts they’d have passed the ETIC, which we’re one of 9 states that doesn’t have it, and given a renter’s tax credit so those people getting screwed out of houses by the bank or landlord could get some relief. instead they gave credits to people wealthy enough to afford a new mortgage in this economy and plenty of preferential business breaks.
May 12th, 2009 at 3:06 pm
not paying your bills
=
“screwed out of houses by the bank or landlord ”
wow
May 12th, 2009 at 3:45 pm
This is quite possibly the first time I have ever agreed with any decision by Sonny Perdue.
May 12th, 2009 at 5:24 pm
whoops, its 24 states that have EITC.
Regarding foreclosures: many states that actually have consumer protection do not allow banks or lenders to start foreclosures after 30 days they didn’t receive a montly payment. the general assembly could have implemented similar protections but it didn’t. once you are late lenders can charge enormous late fees that keep one from catching up. These late fees can be capped as well, but they are not here in GA. many foreclosures are due to people who become ill or lose their job. foreclosing that happens here in GA is bad for the state, and not just about people not paying their bills. and yes, renters are being forced out when banks foreclose or an owner is forced to sell, often at a very low price, when with a little time they could get back on their feet. there’s a lot of blaming the little guy here in Georgia when a little bit of consumer protection would go a long way.
May 12th, 2009 at 10:22 pm
RE commenter Adam’s assertion that it’s hypocritical to oppose a Georgia cap gains cut on grounds of fiscal irresponsibility while supporting Obama’s deficit-growing policies, I disagree. Obama has pretty clearly chosen spending options that are, by and largely, stimulative. They’re explicitly designed to grow the economy in the short run, and that’s viewed as worth the price of running up deficits. By contrast, cutting the state capital gains tax isn’t going to have a short-term stimulative effect at all, and even in the longer run its impact is questionable. (Plus, any additional investment caused by a Georgia cap gains break could take place in Georgia or Alabama or China– it’s just not a very localized economic development strategy.) Put another way, if Obama decided to cut the capital gains tax in the name of stimulus, he’d be getting precisely the same criticisms the Georgia legislature has faced– and he’d deserve it.