Government leadership in Raleigh insists that the political allocation of investment is superior to market allocation of investment. Do not mind the words of politicians, but rather the actions of politicians.
As fellow Civitas blogger Brian Balfour pointed out in a recent post, which can be found here, North Carolina’s private sector job growth ranks 35th over the last ten years. This number is a manifestation of North Carolina’s unfriendly business tax climate which was ranked 41st in the country by the Tax Foundation in 2010. Meanwhile, over those same ten years, North Carolina ranks 3rd in public sector job growth.
The corporate tax rate in North Carolina is 6.9%, a figure which does not include the temporary (for now) 3% corporate income surcharge added in the 2009 budget. Corporate revenue flows into Raleigh and is then funneled into the budget for the purpose of economic development. For fiscal year 2010-2011, the state allocated $73.8 million for economic development items. Additionally, the General Assembly insists upon preferential tax treatment for certain industries (surely these specific incentives are not politically motivated…) such as film production, renewable energy and pulp manufacturers. Lost revenue for this preferential tax treatment is not included in the $73.8 million figure.
The broad economic development strategy in our state seems to be that corporate revenue should be doled out wherever state government deems best through preferential tax treatment such as refundable tax credits and through development grants. If our political leaders trusted in free market investment allocation, the General Assembly would lower corporate tax rates and allow businesses to invest more of their own money in order to grow and create jobs. Our state’s current economic development strategy indicates a distrust of market forces and faith in government-directed investment which the citizens of North Carolina know is unfair and subject to cronyism. Job growth numbers of the last decade indicate that our strategy is not working and that any economic rebound will be in spite of North Carolina’s strategy, not because of it.