by Mitch Kokai
Senior Political Analyst, John Locke Foundation
In an otherwise excellent article about the limited impact of targeted tax incentives in North Carolina (already noted by “Locker Room” colleague Jon Sanders), Zachary Eanes of the Raleigh News & Observer offers the following statement:
North Carolina, which has repeatedly lowered its corporate tax rate over the last decade, has been aggressive in using incentives to lure new companies to the state.
With no other reference to the corporate tax rate, it’s unclear what Eanes or his editors hope readers will infer from the subordinate clause.
North Carolina has repeatedly lowered its corporate tax rate over the last decade: from 6.9% in 2013 to 2.5% today.
This has nothing to do with targeted tax incentives for individual companies. In fact, lowering the corporate tax rate is based on an entirely different economic strategy than targeted incentives.
A lower corporate rate helps every corporation — and, by extension, all of their customers, workers, and shareholders — operating in North Carolina. It makes no distinction among existing or new companies. There is no element of government officials and bureaucrats choosing to serve as benefactors for a particular favored company.
In contrast, targeted incentives are based on government choosing to help one company at the expense of all other taxpayers. Use of incentives assumes that people in government have superior knowledge about which companies should operate in the state.
Read the rest of Jon Sanders’ “Locker Room” entry cited above, and you’ll find your way to his discussion of the need for a “broader debate about corporate welfare.”
He discusses four possible combinations for corporate tax rates and targeted incentives (or corporate welfare):
Freedom & Growth: Low corporate taxes, low corporate welfare
Letting producers and households keep more of their own resources to use as they see best is a proven way to promote faster economic growth and expansion.
Redistribution, Anti-Business: High corporate taxes, low corporate welfare
High levies on producers with few giveaways to corporations is the political class redirecting resources from one group to others.
Redistribution, Pro-Business: Low corporate taxes, high corporate welfare
Low levies on producers with high giveaways to corporations is the political class redirecting resources to one group from others.
Central Planning & Cronyism: High corporate taxes, high corporate welfare
Taking more resources from producers and households to be directed at the whim of the political class is proven way to slow economic growth and empower politicians.
The bottom line: Lowering the corporate tax rate should not be equated in any way with “aggressive” use of incentives to “lure” companies to the state.