Tuesday, May 12, 2009

Perdue vetoes capital gains tax break

Posted By on Tue, May 12, 2009 at 4:22 PM

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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.

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