Taste Grates, Less Filling
Orginally posted on CityStink
January 14, 2012
By Al Gray
The author, Al M. Gray is President of Cost Recovery Works, Inc., a provider of Cost Avoidance and Cost Recovery for America’s leading companies, businesses and governments desiring Superior Returns.
When Augusta Democrat Senator Hardie Davis heartily endorsed Nathan Deal’s latest financial brainstorm, the elimination of sales and USE tax on energy used in manufacturing we were surprised for a host of reasons, the main one being that it will cost Augusta Richmond County $millions in lost tax revenue. In a time that the state and municipal governments are desperate for revenue Davis wants to give away stable sources of sales taxes that cannot be replaced? He wants to shift the Georgia tax burden from corporations to constituents on fixed incomes, like social security recipients?
Then it hit us. Hardie Davis is switching to the Republican Party. Good for him. It will be a marriage made in haven – the Gold Dome. It might be even smart politics. Everyone involved can guzzle tax free energy drinks courtesy of the Georgia Traditional Manufacturers Association (TIPAC). The legislators have a ken for fun drinks, but to constituents this one grates the tongue and doesn’t fill the revenue coffers with anything more than hot air.
If Hardie isn’t going GOP, he has sure failed us with a stellar imitation. Now right about now, Hardie and every other GOP hawker of this money give-away is screaming about passing this exemption to become “competitive.” Change the word to “cannibalistic” and you about have it. What this give-away does is to strip Augusta Richmond County and the 13 county region of $11 million of sales tax revenues over 10 years if you believe the projections underlying the huge new transportation tax increase. This writer knows the losses to be far worse. You can multiply that $11 million (see page 7 ) by 4 – the loss on the new 1% transportation tax, plus the existing 3% local, special, and educational taxes, for a stunning $44 million over ten years! If the legislators tinker with not having the exemptions apply to local sales, that subverts the simplicity always cited for a sales tax.
Just one Augusta manufacturer provided a written statement in 2010 to the Georgia Tax Reform Council that indicated that her plant pays $2 million a year in state sales taxes on electricity and a staggering $1.5 million a year in local Augusta Richmond County taxes. Right about now some of you readers are exclaiming “The consumers of the plant’s products really pay those sales taxes!” Right. The problem is that the vast majority of consumers paying the embedded Georgia and Augusta tax of our manufacturers are in other states. Tax payments by consumers spread the revenues around so that they come to rest outside of Georgia. Does this still sound like a good idea?
The $1.5 million Augusta will lose from that plant on SALES taxes is probably dwarfed by USE taxes that are paid by every Augusta manufacturer that uses a heating process loop in any of their production and manufacturing utility systems. This new exemption also covers industrial fuels, such as coal, natural gas, or diesel fuel in addition to electricity. This revenue loss could easily be between another $2 million and $3.5 million of Augusta local taxes (without the new transportation tax). How will Augusta make up the loss of $3.5 to $5 million of local tax? Is it that easy? On the state tax side of the ledger, doesn’t Georgia need the corresponding $7 million or so to pay teachers?
We sympathize with Georgia companies who are hurting, but what about her people?
The Hardie Davis tax free energy drink won’t sustain financial life in a host of other Georgia municipalities with similar concentrations of manufacturing, such as Chatham, Glynn, and Daugherty counties. Even worse will be the unsuspecting smaller counties with an unknown large energy user. State sales tax reporting to counties doesn’t show the source of the revenues, so many really don’t know what is about to hit them. For example, even though the textile industry has moved largely offshore, electricity-guzzling yarn plants have remained in Georgia and the USA. Can little Rabun County afford the loss of $1 million in sales taxes? Heard? Mitchell? Putnam? Effingham? Bartow?
Proponents of the tax free energy treat cite competitiveness needs between the states. This has some validity, as other states have chosen to cannibalize tax revenues in a futile attempt to overcome the $30 an hour labor cost difference with China, just as Georgia has futilely spent as much as $168,000 per $40,000 auto plant job in the race for our politicians to claim some very strange bragging rights. This will be just throwing good money after bad.
Since the justification for this tax break is to attract new plants one compromise that could be made comes out of Georgia’s own manufacturing tax rules from the 1980’s. Back then, a new manufacturer or a major plant expansion qualified for new exemptions, while existing ones had to be content with the incentive packages that they received upon building in Georgia. This would satisfy the lack of competitiveness for new plants without destroying the fruits of the past and the revenues of many Georgia counties with them.
That we would welcome Hardily and Senator Davis could keep his Democratic Party bona fides. Who knows, Augusta even might get an energy drink bottler, with $168,000 per job incentives, of course. Better yet, let’s return good old fashioned mathematics to the legislature. Professor Davis can lead our way instead of drinking Gov. Nathan Deal’s Kool-aid.***