Today marks 33 days since Gov. Roy Cooper vetoed House Bill 966 – 2019 Appropriations Act – the budget bill passed by the North Carolina General Assembly.
Gov. Roy Cooper’s explanation for his veto was concise:
This is a bad budget with the wrong priorities. We should be investing in public schools, teacher pay and health care instead of more tax breaks for corporations.
The mention of “more tax breaks for corporations” is a direct reference to a reduction of the state’s franchise tax. As Civitas has covered previously, the franchise tax is levied against the net worth of a business. In other words, the tax is levied whether a company has made a profit or not. This tax disincentivizes further investment and economic growth in our state.
Nonetheless, Gov. Cooper’s statement indicates that he is opposed to further reducing corporate taxes in North Carolina, in favor of more government spending.
However, the actions of the Cooper administration in the past 33 days show an inconsistent (or hypocritical) streak in tax philosophy.
The Department of Commerce, whose Secretary is appointed by the governor, has several discretionary corporate incentive programs at its disposal. The primary three that receive public announcements are:
- The Job Development Investment Grant (JDIG) – a discretionary incentive program that provides cash grants directly to new and expanding companies to help offset the cost of locating or expanding a facility in the state.
- The Job Maintenance and Capital Development Fund (JMAC) – a discretionary incentive program that provides annual grants to large businesses seeking capital improvements within the next six years. The purpose of JMAC is to retain jobs in North Carolina, not create new jobs.
- The One North Carolina Fund – a smaller discretionary cash-grant program that allows for a quicker response from the Department of Commerce to competitive job-creation projects.
Regardless of any superficial differences in the designs, these three programs create special tax loopholes for specific companies that are hand-picked by the Department of Commerce and the Office of the Governor. In short, these programs operate as discretionary corporate tax cuts. Moreover, since they are discretionary, one would think that the Cooper administration would shy away from their use.
However, data from the Department of Commerce since the date of Gov. Cooper’s budget veto suggests otherwise.
Since the date of Gov. Cooper’s veto when he decried “tax breaks for corporations” in the budget, his administration has signed more than $39 million in corporate incentive packages – all of which the governor has the discretion not to approve.
That averages out to roughly $1.2 million in corporate tax breaks per day since the budget veto.
Remember, these figures do not include the $54,090,750 JDIG agreement, which was announced for Lowe’s the day before the budget veto. Also, the Goodyear incentive from JMAC is not for job creation, but to retain jobs that already exist in North Carolina.
It appears that Gov. Cooper is not opposed to corporate tax breaks, he wants the discretion to determine which companies have lower tax bills and which do not.
The continued use of corporate tax incentives marks a glaring bit of hypocrisy in the Cooper administration’s philosophy on tax policy. Tax incentives are arbitrary, unfair, and keep overall tax rates artificially high.
Cooper apparently believes that corporate tax cuts will spur job creation. I agree with him, and so does a recent academic study published by the Civitas Institute. However, tax rates should be levied fairly across all businesses and not used to pick winners and losers among the most politically-connected corporations.
There can be a reasonable policy discussion on corporate tax cuts but vetoing a budget because of them is ripe with hypocrisy.