RALEIGH — North Carolina could add more than 42,000 jobs at no cost to taxpayers if the federal government got rid of its estate tax. That figure is based on research associated with a new report from the Washington, D.C.-based American Family Business Foundation.
“While North Carolina continues to throw millions of dollars at companies to bring in much smaller numbers of jobs, this research suggests a much more effective way to put North Carolinians back to work,” said Joseph Coletti, John Locke Foundation Fiscal Policy Analyst. “State lawmakers have agreed to forgo as much as $46 million in tax revenue for the next 10 years so Apple will create 50 full-time jobs. If we can create 800 times as many jobs without taking money out of taxpayers’ pockets, it seems like a good idea.”
The new report does not spell out the additional job gains North Carolina would see with a repeal of its state death tax, Coletti said. “The state death tax contributes less than 1 percent of tax revenues, while the benefits of getting rid of the tax could be substantial,” he said. “I would bet that repealing the death tax has a better bang for the buck than giving targeted incentives to government-selected companies.”
A former director of the nonpartisan Congressional Budget Office, Douglas Holtz-Eakin, conducted the research that led to an estimated 42,376 new jobs in North Carolina. Holtz-Eakin, a former Syracuse University economics department chairman, estimated the impact of repealing the federal estate tax at 1.5 million jobs nationally. Since the tax primarily targets owners of small and family businesses and family farms, North Carolina’s estimate is based on the percentage of the nation’s small-business jobs located in the Tar Heel state.
“With the sixth-highest unemployment rate in the country, North Carolina certainly could use more jobs,” Coletti said. “In these tough economic times, it seems clear that lawmakers on Capitol Hill and on Jones Street should be interested in finding ways to boost employment without boosting taxes or the federal deficit.”
Under current law, the federal estate tax is assessed at a 45 percent rate on assets in an estate exceeding $3.5 million. Legislation passed during the Bush administration has slated the tax to expire or “sunset” at the end of 2009, only to return in 2011 at a higher rate.
Congressional observers expect some action on the federal estate tax this fall, before the “sunset” provision would take effect. President Obama’s first budget proposal included a permanent estate tax rate of 45 percent on estates valued at more than $3.5 million.
“While some in Washington want to lock in this tax that thwarts entrepreneurs and job creation, those who are concerned about rebuilding the economy would pursue the exact opposite course,” Coletti said. “If doing away with the estate tax will trigger the creation of more jobs at no cost to taxpayers, it makes good sense to eliminate the tax.”
State lawmakers should also keep in mind the job implications of North Carolina’s estate tax, Coletti said. “Senate Bill 572 would repeal the state death tax, an idea that would have economic benefits,” he said. “But even if lawmakers decide not to deal with that tax during this current budget debate, they could help North Carolina’s economy in the future by scrapping this tax.”
“It certainly makes more sense to generate new jobs by reducing the tax burden for all businesses affected by the estate tax, than to throw millions of dollars in tax breaks at targeted companies,” Coletti added. “If the theme for state government during an economic downturn is ‘Jobs, Jobs, Jobs,’ then we ought to pursue policies that will allow entrepreneurs to generate jobs.”