Extras on Excise: Georgia Fuel Tax Break Controversy Highlights Concerns over Political Aspects of Taxation

From SALT Talk Blog

By Laura Lieberman | March 7, 2018

One opinion regarding the nature of excise taxes is that they can be used to target certain groups or products, such as traditional “sin” taxes on products like alcohol or tobacco. Georgia’s controversial reaction to Delta ending its discount program for travel to the National Rifle Association (NRA) annual meeting has provided many commentators with a perhaps extreme example to illustrate concerns over the role politics often plays in establishing certain tax breaks or policies.

Delta and Georgia at Legislative Loggerheads

After Delta made its Feb. 24 announcement to eliminate the NRA 2018 annual meeting travel discount in light of the Feb. 14 Parkland, Florida, school shooting, Georgia Lt. Gov. Casey Cagle (R) wrote on Twitter that he would “kill any tax legislation that benefits @Delta unless the company changes its position and fully reinstates its relationship with @NRA.” The tax legislation in question was 2018 Ga. H.B. 918, which, in addition to proposing corporate and individual income rate cuts, would have provided sales tax exemptions for jet fuel for airlines flying out of Hartsfield-Jackson Atlanta International Airport. Three days before, on Feb. 22, the House voted 134–36 to approve the legislation. Delta would have profited from the legislation, as its hub is based at the Atlanta airport.

The Georgia General Assembly followed up on Cagle’s promise and sent a revised bill without the exemption to Gov. Nathan Deal (R), who signed it March 2, as originally reported by Bloomberg Tax’s Chris Marr (subscription required).

This exemption was a revival of a previous jet fuel sales tax exemption, available under Ga. Code Ann. § 48-8-3, that provided a 1 percent exemption for jet fuel purchased or sold by qualifying airlines at qualifying airports. 2015 Ga. H.B. 170 repealed it, effective July 1, 2015. It was originally a temporary measure instituted in 2005, but kept getting extended, as the Atlanta Journal Constitution’s Politically Georgia blog explains.

Are Tax Breaks a Boon or a Bane for the Economy?

While this controversy may seem relevant primarily in the context of recent gun control debates, it also highlights issues that some analysts identify as problematic for tax policy. Tax policy and political commentators have raised two main issues about this legislatively-tailored type of tax treatment: 1) that the exemption was removed as a punishment for the actions taken by a specific company, and 2) that the exemption existed in the first place.

Taxation as Punishment

Sound tax policy, according to many of the commentators, cannot be based on withholding tax benefits over public policy disagreements. For example, Tax Policy Center’s Howard Gleckman, noting the politically-fueled history of the Georgia fuel tax exemption’s creation and demise (the exemption ended in 2015 because of backlash against Delta’s lobbying on tax rates), summarizes the exemption as “an explicit form of political pork to be doled out to friends and taken from enemies.” Sam Massell, former Atlanta mayor, expressed concerns that the removal of the tax exemption was akin to “‘blackmail’” in his interview with the New York Times; an AJC Politically Georgia columnist also called it “political blackmail.” Washington Post opinion columnist on economics and public policy, Catherine Rampell, raised similar concerns.

Selective Tax Treatment

Those benefiting from jet fuel exemptions maintain their importance to the economy; Forbes quotes an airline trade association spokeswoman as saying that jet fuel exemptions make states “‘more attractive to low-cost and ultra-low-cost carriers’” and that “‘[w]hen barriers like high taxes are lifted, these carriers can enter a market and spur competition, ultimately benefiting everyone who flies.’”

However, many find it troubling that such exemption programs exist. Gleckman asserts that Delta doesn’t need the exemption, as it made $4.4 billion in profits in 2017. This, in addition to the politically-motivated exemption revocation, “describes all that is wrong with economic development tax subsidies.”

Rampell, moreover, speaks to the primary critique of selective tax treatment in her discussion of the Georgia Republicans’ tax policy: “[T]hese kinds of state-level arbitrary tax carve-outs — often intended to appease a particular big firm bearing lots of jobs — are often bad policy and can lead to a race to the bottom. They also distort markets, affecting the incentives for where firms invest and in what. And they favor some firms at the expense of others.”

With Georgia’s H.B. 918, policy analysts have several talking points to make their case, either for or against preferential tax treatment tailored for specific entities, but the debate is likely to continue.

Disclaimer: Bloomberg Tax is operated by entities controlled by Michael R. Bloomberg, who also serves as a member of Everytown for Gun Safety’s advisory board. Everytown for Gun Safety advocates for universal background checks and other gun control measures, and it is helping to promote the March for Our Lives.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: What role do selective tax benefits for companies have in tax policy?

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