by Dan Way
It is difficult to argue, with a straight face and without crossing fingers behind your back, that the tax climate in North Carolina is not a stumbling block to economic improvement. As the election season flows with gathering speed towards its Nov. 6 conclusion in the General Election, that argument is heard more loudly, and with greater urgency, from candidates who champion more free market and less government hindrance (sometimes called government help by those on the left).
Republican gubernatorial candidate Pat McCrory, for example, during his first debate with Democrat Lt. Gov. Walter Dalton last Wednesday, said “the best incentive for new jobs in North Carolina” is to avoid leading the pack in the Southeast with high sales, corporate and income taxes.
But the Tax Foundation, a nonpartisan research organization, just released its 2013 State Business Tax Climate Index, and it shows North Carolina isn’t just shooting itself in the foot with tax policies that hamper its competitiveness, but anchors the state firmly in the Somber Seven at the bottom of the heap — 44th worst of the 50 states. The state’s ranking remained unchanged from the 2012 list.
North Carolina has managed to tumble well below every other state in the Southeast, and the authors of the study tell why that is a crucial, but alarming, development.
“It is important to remember that even in our global economy, states’ stiffest and most direct competition often comes from other states,” Tax Foundation economist Scott Drenkard wrote in the report. “The Department of Labor reports that most mass job relocations are from one U.S. state to another, rather than to an overseas location.”
So now, even folks in the once depressingly struggling states of Mississippi, Louisiana, and Arkansas can say, with some economic authority, “Thank goodness for North Carolina.” Those states rank 17, 32, and 33, respectively. Florida is 5, Tennessee 15, Alabama 21, West Virginia 23, Kentucky 24, Virginia 27, Georgia 34, and South Carolina 36.
Former state Supreme Court justice Bob Orr, executive director at the North Carolina Institute for Constitutional Law, unsuccessfully challenged the Dell deal in court as unconstitutional because lawmakers manipulated state tax code to grant special tax preference to just one entity. While the case was defeated in the court of law, Orr’s opposition to sweetheart subsidies partly on the belief that large, out-of-state corporations have no loyalty to the local community, got much better reception in the court of public opinion, especially after Dell pulled up stakes and went away after only four years.
“Lawmakers create these deals under the banner of job creation and economic development, but the truth is that if a state needs to offer such packages, it is most likely covering for a woeful business tax climate. A far more effective approach is to systematically improve the business tax climate for the long term so as to improve the state’s competitiveness,” Drenkard and co-author Joseph Henchman wrote in the Tax Foundation report.