Pandora’s Box is open. In the wake of this week’s giveaways, its time to reflect. Whether we’re talking about $40 million for Goodyear or $60 million for a few, the economic incentives game in North Carolina has begun in earnest. It’s no longer targeted tax cuts like we got with Google and Dell, but direct handouts from an ever-expanding trough. Witness as the jostling begins over the coming months. Only the strongest will get to the slop.
What will we have gained? Politicians will tell you that the short-term gain of protecting jobs somewhere will make it worth destroying wealth and making rich companies richer (and from a productivity standpoint—flabbier). But the unseen costs will be far greater. New jobs that would have been created from efficiency gains, freed-up capital, and, of course, our tax dollars, will never be born.
A deadweight industry of lobbyists will expand and converge on Jones Street. As Rep Paul Stam (R-Wake) put it, aping a company exec: "How do we make money this year? Forget about selling tires. Hire lobbyists." Another way to put it might be: instead of hiring engineers, hire lobbyists. Once you’ve got your public affairs people in place, all you have to do is threaten to leave.
The Tar Heel state will become rife with bathroom commerce a la Black, as lobbyists lick their chops and the Democrat party consolidates more and more power around the special interests beholden to them. And that, folks, is power. Taxpayers, squeezed of more resources, won’t likely blame those in power, but rather the evil corporations – as if these dubious alms dropped not into the begging bowl by men, but by some faceless government whose only apparent interest is to “save jobs.” As if those evil corporations aren’t prodded by that timeless old calculation “if I don’t, someone else will.”
Worse, by engaging in these cash-to-placate arrangements, our leaders will have escalated the incentives arms race against other states that no one can win. Eventually, someone will have to cry uncle, though it’s not yet clear who. Before anyone finds the source of the pain, the economy will be so distorted, so inefficient, so propped-up and so utterly in hot water that we’ll feel like that frog that doesn’t know to jump out of the pot. Bloated industries everywhere, paid not to change, will languish as the goodies start to dry up. But by then, we will have created a system of patronage and quid pro quo so entrenched we may just start to look like some country south of the border.
Even if you think concentrating benefits on a few in your district actually works (to any other end besides furthering your political career), consider a Memphis, Tennessee case study by economist Fred Sautet of the Mercatus Center, who concluded:
”For decades now targeted tax incentives have been a favorite elixir of state and local politicians in depressed communities. But targeted tax incentives don’t spur real growth. Quite the contrary. While across-the-board tax cuts expand economic activity, targeted tax incentives are inevitably financed at the expense of established businesses. Today’s winner of a targeted tax break is tomorrow’s victim of a broad increase in business taxes. Assuming, that is, that this employer sticks around.”
If we want to improve the economic conditions in North Carolina, the solution is surprisingly simple: create a fertile business landscape.
First, lower corporate taxes at least in line with other Southeastern states, so citizens don’t have to pay companies to come or stay. (And ignore those who would cry out about corporations paying their ‘fair share’ in taxes, because businesses already pass along tax-costs to us in the form of higher prices.)
Second, if you don’t want to cut government spending, take the hundreds of millions in porcine goodies and put them towards funding for our inadequate transportation infrastructure. After all, the North Carolina Turnpike Authority needed what Goodyear got to start five public-private tollways around North Carolina. Sadly, our legislators were too busy dolling out corporate welfare to attend to our roads.
But before we do anything else in this state, we’ve got to stop these corporate incentives. Even if you think we’re in competition with other states, we can’t let their bad behavior dictate our actions. Real leadership requires doing what’s right – even in the face of a prisoner’s dilemma. We may be surprised at who else is willing to stop this madness, if we do.