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Four Effective And Popular Options For Creating Jobs In North Carolina

Brian Balfour  |  June 2, 2009

With the economic recession taking a heavy toll on North Carolinians, one thing is on everybody’s mind: jobs. Indeed, when voters were asked what is the biggest issue or problem facing North Carolina today, an overwhelming 54 percent responded with “improving the economy and creating jobs.” The next highest issue (taxes/wasteful spending) garnered only 12 percent.¹

Many North Carolina lawmakers are desperately seeking solutions to the state’s job crisis. They are searching for options that would not only stimulate job growth, but would garner significant public support as well.

The following four options meet those criteria. Each policy is a proven job creation strategy that enjoys significant public support. It is seldom that any public policy enjoys  the kind of public support generated by the following recommendations.

North Carolina lawmakers have a rare opportunity to implement policy that will be both effective and widely popular. They shouldn’t pass it up.

1). Ease tax burden on small businesses
An overwhelming 85 percent of voters said they would approve of a 10 percent tax cut to every small business. Moreover, 60 percent of voters said small businesses are better able to create jobs, compared to only 9 percent who replied “government.” ²

• Small businesses create the majority of new jobs in North Carolina and across the nation.
  
  • Businesses of less than 20 employees, in fact, account for roughly 60 percent of new job growth in North Carolina.³

• North Carolina has one of the highest small business tax rates in the nation.
  
  • Most small businesses are organized as “pass-throughs” such as S-corps, partnerships and LLC’s. Pass-through businesses file under the personal income tax rate.
  • North Carolina’s top marginal personal income tax rate is highest in the Southeast and is 11th highest nationally.⁴

Recommendation:

• North Carolina should create a special top marginal tax rate on pass-through businesses of 5 percent in order to be regionally competitive
• The new rate would encourage more small business creation and growth, providing a major jumpstart to new job creation.

2) Increase access to affordable health care
86 percent of voters favor being allowed to purchase health insurance from other states.⁵

• Skyrocketing health insurance costs place a growing burden on businesses, especially small businesses, making it more difficult to keep or hire employees.

• When individuals are forced to spend more on their health insurance, they have less money available to purchase other items; overall consumption and economic activity is decreased.

• Consider that North Carolina's average annual family health insurance premium of $4,104 is higher than 30 states, and is 61 percent higher than Iowa's ($2,544) and 55 percent higher than North Dakota's ($2,652).⁶

Recommendation:

• Allow North Carolinians access to more affordable health insurance plans offered in other states.
  • This idea was proposed in Senate Bill 725.

• Allowing access to more affordable health insurance options from other states will have a major impact mostly on small businesses, as large, multi-state corporations that “self insure” are already exempt from state regulations.

• Small businesses can leverage their health care savings to hire more workers and pay higher wages.

• Individuals who save money on their health insurance will have more money to spend on other goods and services to fuel economic growth.

• Additionally, opening up the health insurance market to more competitors from out of state will force Blue Cross Blue Shield of North Carolina and other in-state providers to find ways to innovate and compete with more affordable plans. The result will be even more savings for insurance customers.

3) Decrease the income tax burden
When asked if they believe taxes in North Carolina are too high, too low, or just about right for the services they receive; 66 percent of North Carolina voters replied “too high,” compared to just 2 percent that said “too low” and 29 percent that responded “about right.” ⁷

• North Carolina has one of the highest income tax rates and burdens in the nation.
  • North Carolina’s top personal income tax rate is 7.75 percent – highest in the Southeast and 11th highest in the nation.
  • North Carolina’s personal income tax collections as a share of personal income is highest among Southeastern states and ranks sixth among the 43 states that tax income, coming in just behind California.⁸
  • North Carolina’s state tax collections as a percentage of personal income is third highest in the nation, and is even higher than the state tax burdens of New York, Massachusetts and Connecticut.⁹
• North Carolina’s tax burden means slower job growth.

• North Carolina’s current unemployment rate of 10.8 percent (March 2009) is fifth highest in the nation.¹⁰

• North Carolina job growth from Jan. 2001 to July 2008 was third lowest among Southeastern states. The growth rate of 8.5 percent trailed well behind Florida (15 percent), Georgia (12.5 percent) and the Southeast regional average of 11 percent.¹¹

Recommendation:

• Eliminate the 7.75 percent tax bracket, dropping the top marginal rate to 7 percent.

• The 7 percent top marginal rate would match South Carolina’s top income tax rate, and make North Carolina more competitive with Georgia (6 percent) and Virginia (5.75 percent).

• Lower taxes on income means higher take-home pay for workers, in other words a greater incentive for productive activity. More productive activity is the key ingredient for economic growth and job creation.

4) Stop corporate welfare and level the playing field for all businesses
Voters were asked “In order to create jobs, is it better to give targeted tax breaks and cash incentives to a few large companies or give across-the-board tax cuts to all small and medium sized companies? An overwhelming 87 percent replied “across the board tax cuts,” compared to only 7 percent that said “targeted tax breaks”.¹²  

• North Carolina spends roughly $400 million per year in targeted tax breaks and handouts to politically-favored corporations.
• This practice is unfair and punishes small businesses who can’t afford lobbyists to broker sweetheart deals with government.
  • The corporate welfare game is widely unpopular among the public, and has been panned by critics from all ends of the political spectrum.

• North Carolina’s corporate tax rate is highest in the southeast.
  • Sen. Dan Clodfelter (D – Mecklenburg) noted in a Senate Finance Committee recently; “the existing tax system in North Carolina undercuts our competitive position and acts as a deterrent to new business investment and especially to the creation of new jobs.”
• A 2008 Organization for Economic Co-operation and Development (OECD) study¹³ examined the impact of various taxes on economic growth, and concluded that “Corporate taxes are found to be most harmful for growth.”

Recommendation:

• Reduce the corporate tax rate to 4.5 percent and eliminate all targeted tax breaks
  • The drop in corporate tax revenue would be virtually offset by the elimination of the $400 million in targeted tax breaks and handouts.¹⁴
  • The lower rate would make North Carolina much more competitive.
  • A uniform tax rate for all businesses would level the playing field. Rather than government rewarding companies with the best lobbyists, the new system would reward businesses that best serve consumers.

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