Per the News & Observer, Gov. Perdue and state Commerce Secretary Keith Crisco are visiting Japan – with Crisco also planning a two-day swing to China – in order to recruit businesses to NC.
Foreign direct investment (FDI) is an important part of our economic growth, and given the increasingly globalized economy will continue to grow in importance. Unfortunately for Perdue and Crisco, NC has erected a roadblock to expanding FDI in our state in the form of our corporate income tax. At 6.9%, our state corporate income tax is highest in the Southeast, placing us at a competitive disadvantage to our regional neighbors.
Think the state corporate income is insignificant in terms of recruiting FDI? This study produced by University of Michigan economists concludes “for foreign investors, the corporate tax rate is the most relevant tax in their investment decision.” Moreover, this paper by a Federal Reserve economist finds that “In the case of the state corporate income tax, labor bears a significant burden from the tax in the form of lower wages.”
In short, NC’s high corporate tax rate can be blamed in part for a lack of investment, fewer jobs and lower wages. Making matters worse, many of the targeted tax breaks in NC’s tax code are offered against the corporate tax – making the corporate tax a key enabler to our corrupt and economically inefficient system of crony capitalism. Indeed, it is only a relative few hundred corporations that bear the majority of the corporate tax burden.
For these reasons, state lawmakers should consider scrapping the state’s corporate tax as part of their 2013 state tax reform efforts.