by Mitch Kokai
Senior Political Analyst, John Locke Foundation
George Leef’s latest Forbes column examines North Carolina politicians’ continuing fascination with targeted tax incentives.
One of the great bipartisan follies of American politics is the idea that the way to make your state (or city) more prosperous is through corporate welfare – in particular, policies meant to lure in companies with cash, tax breaks, or both. Rare is the politician in either party who dissents from the conventional wisdom that it’s the government’s task to “improve the economy” by using targeted incentives.
At best, this is a zero-sum game. The commerce and jobs that a city or state gains would have located elsewhere if it weren’t for the incentives. While a small number of residents benefit from the fact that the business located there, the overwhelming majority of the rest of the people aren’t affected. Of course, the politicians will crow that “the state gained jobs” and to people accustomed to thinking in abstractions, that sounds good.
Not infrequently, the results of these incentives make it a negative sum game. Here’s an example. In 2011, North Carolina spent $20 million to induce Chiquita Brands to move its corporate headquarters from Cincinnati to Charlotte. That was nice for a very few Charlotte residents, but it made no difference at all to the rest of the state’s population, hardly any of whom even knew about this “win” for the state.
But after a corporate buyout of Chiquita Brands last year, the company’s new Brazilian ownership decided to close the Charlotte headquarters. Money that could have gone into something of lasting benefit for far more people (better road maintenance, for example) was squandered on the corporate welfare game. (As we read in this Charlotte Observer article, Chiquita has promised to repay the money it got from the state, but that’s uncertain due to the company’s shaky finances.)
For a few years, 320 people in Charlotte got to work for Chiquita. For everyone else, it might just as well have remained in Cincinnati – and the tax dollars in our pockets.
Democrats and Republicans are both hooked on business incentives. North Carolina’s Chiquita gambit occurred during the administration of Democratic governor Beverly Perdue and her successor, Republicans Pat McCrory has urged the state legislature to increase the amount of money he will have to use as bait to lure more corporations to locate in the state. That request comes despite the poor track record of such incentives – from 2002 to 2013, sixty percent of the grants made by the state were canceled after the recipient firms failed to meet their job creation promises.
It might be hard for many politicians to grasp this, but they do not have to play an active role in catalyzing economic growth and the job creation that it brings. All they need to do is maintain the conditions that don’t repel investment and discourage work. As Mitch Kokai of the John Locke Foundation pointed out in a Wall Street Journal article in March, “There are other steps lawmakers can take that are much more likely to boost the economy: Ensure the delivery of high-quality services such as schools and roads while lowering costs, flattening taxes and repealing unnecessary regulations.”