The holiday season may be upon us, but there is no shortage of political happenings in North Carolina. Besides the on-going candidate filing and the release of a long-awaited report in an important education court case, the Civitas Action Freedom Rankings and results from a special poll from the Civitas Institute of likely GOP primary voters were also released.
Most aspects of the current political climate are divisive. However, one recurring issue is rising above the rest as an opportunity for bipartisan cooperation: the ending of corporate welfare in North Carolina.
The Civitas Action Freedom Rankings is an annual scorecard that measures the commitment of state legislators to the cause of freedom. Representatives and senators are graded on a scale of 1 to 100 based on their votes on key bills or amendments. Votes represent an opportunity to expand or defend freedom in North Carolina.
This year, no state senator attained a perfect score, largely due to two bills; one that dealt with targeted tax breaks to certain companies or industries; and another that dealt with pork barrel spending. House Bill 399 extended existing tax breaks for the motorsports and airline industries while Senate Bill 505 extended the Jobs Maintenance and Capital Development Fund (JMAC). The proposed legislation was targeted to make a specific business eligible for the program.
These bills are blatant examples of corporate cronyism, meaning that the government handpicks the businesses or industries for which it provides special tax relief. The tax breaks may help some businesses but they leave other businesses to bear a higher tax burden. Non-favored businesses are essentially forced to subsidize their competition by paying higher taxes so that their competitors can benefit from government handouts.
Politicians of both major political parties participate in this blatant political favoritism. All five of the top five scoring senators in this year’s Freedom Rankings had an excused absence on the day of the graded vote for HB399. When the vote came back through the Senate two weeks later, all 50 senators were present and voted to pass the bill into law.
Civitas Institute asked voters about this issue in a question on December’s special poll on the upcoming GOP primary election. Only 15 percent of likely GOP primary voters preferred targeted tax breaks as a strategy to expand the state’s economy. By contrast, 60 percent of respondents favored across the board tax cuts for all businesses.
Republicans should know corporate incentives are not a winning electoral issue. Recent competition for companies like Amazon has drawn the issue back into the political narrative. This is certainly not a new occurrence, and we’ve seen the negative consequences come to fruition. One would think that the situation with Dell from the mid-2000s would’ve been enough to end the practice in North Carolina. Now, the window for policy change is open, again, as public awareness and opposition to the issue has been revived.
It’s not just Republicans who recognize the injustice of corporate cronyism. Many within the progressive base, who tend to vote Democrat, are also taking a stand against corporate incentives. Congresswoman Alexandria Ocasio-Cortez (D-NY) spoke out against tax breaks for Amazon in 2018 when the company announced it was seeking to locate in New York. If the Democrat Party wants to “fight for the little guy,” opposing corporate welfare is a perfect avenue.
Despite recent pushback from the political Left against the practice, corporate handouts and tax breaks have been a trademark of Democrat Gov. Roy Cooper’s first term. In a pinnacle of hypocrisy, the governor has touted bringing jobs to the state through corporate handouts while simultaneously vetoing the state budget on the basis of its “tax breaks for corporations.” The irony is that the studies have shown corporate handouts are actually a relatively unimportant factor in business location decisions. On the other hand, the vetoed tax reduction would actually help the state’s economy.
Even if progressives and conservatives disagree on the need to cut taxes across the board, both sides can stand against targeted tax breaks, grants, and incentives for hand-picked corporations or industries.
Some of the more practical elected officials may stand on principle against targeted tax breaks, while supporting them as an unfortunate reality due to their prevalence in other states. If North Carolina is the only state to end incentives, surely, we will lose out on businesses moving to incentive-giving states, they say.
This fear, while intuitive, actually lacks the data to back it up. Academic research does not support a positive relationship between tax incentives and economic growth. Research has consistently shown that incentive packages are much less important to location or re-location decisions than other factors such as tax and regulatory climate, workforce availability, and quality of life. In many of those categories, North Carolina is leading the nation. Forbes has ranked North Carolina the number one place to do business for the past two years, and the state is attracting new development largely due to the population and job growth that is happening now. If any state is positioned to be a national leader in ending corporate welfare, it is North Carolina.
Despite a compelling case to end corporate incentives, some lawmakers may be overly-cautious or worried that the business community would make an example out of a lone state taking a stand. For those that share than concern, the practical policy solution is known as an interstate-compact. North Carolina could pass legislation signifying that it will end its corporate incentive programs only once a designated number of other states in the region or nation also pass legislation to do so. This policy tool is utilized in other areas, such as occupational licensing and education. North Carolina could set the example for other states to follow by crafting the compact and being the first state to commit to it.
Corporate tax incentives present an opportunity for elected representatives to take a stand in favor of freedom and fairness. In today’s volatile political climate, reforms that are bipartisan and make common sense should be embraced by elected officials of all political stripes.