Tax Credits Aren't The Same As Tax Cuts

The Atlanta Business Chronicle (subscription required) has an article about proposed Georgia House Bill 1023. Most of the article has been reproduced on Rep. Tom Graves campaign website.

This quote caught my attention: "“Some folks believe that you grow government in order to create jobs,” Graves said. “We believe that you grow the private sector to create jobs.” I certainly agree with the premise of this quote. I disagree with those who believe a larger government is needed to create jobs, in fact, I believe that a larger government is a hindrance to job creation. I agree with the 'we' that the private sector is where job creation occurs.

Where I disagree on this issue with Rep. Graves and many Republican lawmakers is the use of targeted tax credits. Tax credits are not the same as tax cuts whether the Democrats or Republicans are advocating them. In fact, tax credits like the 'angel investor' credit effectively expand the government, exactly the opposite of what supporters intend to do.

For example, suppose a corporation calculated its income tax (currently 6% of net income in Georgia) and submitted that amount to the Department of Revenue. If that corpoartion later received a check from the Department of Corporate Welfare for 50% if its initial investment in a company with fewer than 20 employees, people would recognize that payment for what it is. And it ain't a tax cut. But for some reason when that same corporation calculates its income tax and deducts the 50% investment as a 'credit' on its tax return, people seem to feel as if taxes are cut.

Now reasonable people could certainly believe that this targeted spending would be beneficial for creating jobs and stabilizing unemployment, but it is unreasonable to think this is anything that resembles a tax cut.

Here is the way governments should be be administering tax cuts: lower the RATE!