This article first appeared in the Durham Herald Sun.
With a stroke of her pen last week, Gov. Perdue advanced the power held by the political class over the average North Carolinian.
House Bill 1973, the “Keep North Carolina Competitive Act,” created, extended or expanded a laundry list of targeted tax breaks and credits focused on specific industries.
Such targeted tax favoritism, according to Perdue, “gives North Carolina more tools in our economic development toolbox.”
What it actually represents, however, is the government’s expanding control over the state’s means of production and the continued shift in power from the many to the few.
To understand why this is true, some perspective is in order.
In the era of history before capitalism, the few men of means in society took advantage of their status by obtaining land and acquiring serfs and servants to do their bidding. The means of production of that age (mainly land and manual labor) were thus controlled by a small powerful group of privileged elite. Meanwhile, the masses toiled in virtual servitude according to the demands of an empowered few.
Fast forward in time to the age of the market economy, and the tables were turned. Consumers (the masses) became masters of the means of production. As noted by Ludwig von Mises, one of the most influential economists of the 20th century, “In the market, economic power is vested in the consumers. They ultimately determine, by their buying or abstention from buying, what should be produced, by whom and how, of what quality and in what quantity.”
Even the wealthiest and most gifted in society — those that own the majority of the means of production — are made to serve the needs of the average citizen if they wish to prosper. According to Mises, “The entrepreneurs, capitalists, and landowners who fail to satisfy in the best possible and cheapest way the most urgent of the not yet satisfied wishes of the consumers are forced to go out of business and forfeit their preferred position.”
In short, the capitalist system ushered in a dramatic transformation in power away from the elite few to the masses.
How does all this relate to the bill signed by Perdue?
The entrepreneurs and corporations competing today to satisfy the needs of consumers must combine inputs, such as labor, raw materials, machinery, etc., to produce a good or service at a price the consumer is willing to pay. If they can turn a profit doing this, they succeed; otherwise they fail.
One of the input costs of these competing entities is state taxes. If all businesses are taxed (and regulated) the same, these competitors are vying to meet consumer demands on a level playing field and therefore the power in the marketplace over the means of production still lies in the hands of consumers.
If government steps in to dispense favors such as tax breaks or subsidies to only a relative few businesses, however, the playing field becomes uneven and the elites gain influence over the distribution and use of the means of production at the expense of consumers.
Under this scenario of targeted “economic incentives,” a company can gain an advantage over its competitors by being relieved of one of its expenses (taxes). This advantage, granted courtesy of the political class, will help determine which businesses succeed or fail in the marketplace; and therefore influence who owns a greater share of the state’s means of production and how they are used.
Benefiting from this system, of course, are those businesses with the appropriate political clout receiving the tax breaks, along with the politicians eager to record public relations victories by claiming they are “creating jobs” as they dispense their political favors.
Consumers, on the other hand, are left with fewer choices and less sway over determining who controls the economy’s scarce resources and to what purposes they are applied.
In other words, power is shifted away from the masses and back to the elite class of government officials and the politically connected.
By engaging in the practice of granting targeted tax breaks and credits to politically connected businesses, Gov. Perdue and North Carolina lawmakers turn back the clock to a time when an elite few ruled supreme over the powerless many.
Brian Balfour is a budget and tax policy analyst with the Civitas Institute in Raleigh, online at http://nccivitas.org.