16 COMMENTS
Raleigh, N.C. Republican Gov. Pat McCrory is making the case
for one of the few policies that unite progressives and tea partiers in anger:
corporate tax incentives.
For years, North Carolina, like many states, has had a
system under which the governor can dangle targeted tax breaks and cash grants
in front of companies considering relocating to the state. The current pot of
money available for these corporate incentives, $30 million authorized in
mid-2013, is about to run dry. Mr. McCrory is urging state legislators to
authorize more funding, and to that end the state House passed the N.C.
Competes Act 88-29 on March 5. The bill is now up for debate in the Senate.
The most controversial section of the bill would increase
the amount available for the governor to award this year by $15 million. If
that sum sounds relatively modest by government standards, consider two points.
First, each new grant can last up to 12 years, meaning the
extra $15 million could increase the program’s payout by $180 million.
Second, North Carolina has already issued more than 200
grants since 2002 that will deprive state coffers of an estimated $157 million
in the next two budget years alone. The legislature’s fiscal researchers say
total outstanding liabilities for corporate incentives approach $1 billion.
If the Senate doesn’t act, the governor would no longer be
able to offer grants effective Jan. 1, 2016. The bill that cleared the House
would extend the program for four years. That is a long-term commitment—and a
lot of money.
>
Proponents argue that other states are playing the corporate
incentives game, and businesses have become accustomed to
trading tax cuts for jobs. “There is no question that incentives are the first
box that is checked by anyone looking at North Carolina,” the state’s commerce
secretary, John Skvarla, testified. Lawmakers, even ones lukewarm to the
proposal, seem to have bought into this message. “A lot of us don’t care for
incentives,” one of the bill’s primary sponsors, Rep. Susan Martin, said during
committee debate. But, she added, “we’re not in a position where we can just
say, ‘We’re not going to play that game, period.’ ”
That claim deserves a closer look. The John Locke Foundation
released a report in April summarizing the results of more than 680
peer-reviewed journal articles that studied how state and local policy affects
economic growth. Fifty-five of the articles addressed the impact of targeted
tax incentives, and the results are not encouraging. More than 70% of studies
found that incentives either did not substantially contribute to economic
performance or produced mixed results.
The McCrory administration has pledged nearly $300 million
to companies that promise to create 15,356 jobs by 2026. If the past is
predictive, those promises will fall short. The left-of-center policy group the
North Carolina Justice Center reported last month that from 2002-13 the state
canceled 60% of grants “after recipient firms failed to honor their promises,
with even higher rates of failed projects in the rural and most economically
distressed areas.”
In 2011, $20 million of state money helped lure Chiquita
Brands headquarters from Cincinnati to Charlotte. But after a buyout completed
last fall, Chiquita’s new owners plan to close the headquarters, and community
leaders are now working to recover as much money as possible.
There are other steps lawmakers can take that are much more
likely to boost the economy: Ensure the delivery of high-quality services such
as schools and roads while lowering costs, flattening taxes and repealing
unnecessary regulations.
North Carolina has moved in this direction since the GOP
took control of the state legislature in 2011. Reformers replaced a
three-tiered personal income tax with a 5.75% flat tax. They cut the corporate
income tax over two years to 5% from 6.9%. The legislature passed a law that
will soon legalize hydraulic fracturing for oil and gas, and it enacted a
sunset provision that requires periodic review of existing regulations.
The state economy will reap the benefits of these changes
for years to come. The results are already promising: North Carolina has added
roughly 200,000 net new jobs over the past two years, according to federal
data. That translates into a growth rate of 5%, much better than averages for
the Southeast (3.4%) and the nation as a whole (3.9%). In December 2012, the
month before Mr. McCrory took office,
North Carolina’s unemployment rate was 8.9%, a full
percentage point higher than the national average. By December 2014 it had
dropped to 5.5%, one-tenth of a point below the national average.
Corporate incentives have a lousy record of boosting
economic growth. Instead of getting distracted by the clamor, Mr. McCrory and
state leaders should focus on making North Carolina the best place in the
country to do business—and the jobs will follow.
Mr. Kokai is director of communications at the John Locke
Foundation, a free-market public policy think tank based in Raleigh.
Source:http://www.wsj.com/articles/mitch-kokai-corporate-giveaways-are-not-a-good-deal-for-north-carolina-1426286563#livefyre-comment
No comments:
Post a Comment