North Carolina recently offered Boeing $683 million in tax incentives to open a plant in North Carolina to build Boeing’s new 777X jetliner. The NC bid failed, as did those from some other states, when Boeing decided to build the 777X in its home state of Washington where there is no state, personal, or corporate income tax.
More recently, North Carolina was prepared to offer Toyota up to $107 million worth of incentives to lure the automaker’s North American headquarters from Los Angeles to Charlotte, bringing 2,900 jobs with it. The Charlotte Observer reported that Charlotte lost out to Plano, Texas. The Texas offer was only $40 million but Texas has no corporate or personal income tax and has direct flights to Japan.
Businesses do not locate in any one place solely because of the tax laws. However, as tax burdens climb, the tax treatment of the business itself, and of its higher-paid employees and executives, becomes a more important consideration. Thus the incentive packages, made up primarily of special tax abatements for a set period of time, are developed and used in recruiting new businesses.
It is apparent that the politicians — politicians as diverse as Governor Pat McCrory of North Carolina and Governor Andrew Como of New York — who try to make use of these incentives, are totally missing the point they are illustrating. If you have to bribe a company to locate in your state or bribe one not to leave, your taxes and whatever else you are using to bribe them, are too high or otherwise onerous. If this were not so, companies and entrepreneurs would move to your state without being bribed and those already there would not be trying to leave. Low taxes and a favorable business climate, like that of Texas, bring in many companies from other places, like California, where the business climate and taxes are not favorable.
Already sent to my elected leadership in Raleigh,
I read with interest an article posted at Mises.org regarding economic development in the various states, and using North Carolina as an example. The article is located online at http://mises.org/library/bait-switch-economic-development-states
The article explains states wouldn’t need to bribe businesses if their taxes and regulations weren’t too high. To quote from the article, “In truth, the states should close their economic development offices, cut the size and expense of their governments, and reduce or eliminate the taxes levied on businesses. They should also cut the regulatory red tape required to start a business and then operate that business within their state.”
Before the Republican takeover of both houses of the General Assembly in 2012, the state was spending $22B per year. The state is spending roughly the same amount today, not including what WRAL reports as “huge swaths of federal money the state is overseeing”. How much is huge swaths? Who knows?
The 2012 General Assembly correctly cut spending, albeit nominally, and cut taxes. In concert, these actions have stopped the bleeding. However, it isn’t enough, and why bribes must offered as explained in the article.
The state budget, as you know, is 90 percent salaries which includes an entire layer of state bureaucrats who are highly paid and perform very little service to the state. Many of these bureaucrats are nearing retirement, and it is in their best interest to continue earning their high salaries and not having to work too hard. It’s in the best interest of the taxpaying citizens of this state that they retire. This is the tug of war in which Governor McCrory has been embroiled since 2012. We can’t wait 5 years for this issue to sort itself out. One possibility could be to offer severance packages for those employees who are nearing 30 years by offering them full retirement now. The Legislature and the Governor’s office should be looking long and hard at ways to reduce the management overhead in all state agencies. We didn’t get here by accident, and we can’t reverse the last 20 years of growth in state spending by it. The budget won’t reduce itself and will continue to steal resources away from where they’re needed, providing economic opportunity for all.
My concern is our economy appears to be headed for a downturn, as evidenced by the announced closing of thousands of retail stores across the country, low employment rates, and the high number of families on public assistance. North Carolina cannot afford to be dependent on federal spending. Genuinely cutting spending and cutting taxes, will restore prosperity to this state, insomuch as any state is able to provide an environment for their citizens to prosper in these uncertain times.