The Tax Foundation has released its annual Best Business Tax Climate Index list, and North Carolina is ranked at no. 10. The list “enables business leaders, government policy makers, and taxpayers to gauge how their states’ tax systems compare.”
North Carolina was recently crowned no. 1 when it comes to CNBC’s 2022 “Top States for Business” ranking, and now it can add another pro-business achievement to its list. The state is now in the top ten list for state business taxes.
At the number one spot was Wyoming, followed by South Dakota and Alaska. The bottom three states were the District of Columbia, New York and New Jersey.
The success of the Tar Heel State on the list comes mostly from its ranking when it comes to corporate taxes, which it ranks at 5th out of all the states (though it did decline one place from last year). The Tax Foundation also looked at the individual taxes (17), sales taxes (20), property taxes (13) and unemployment insurance taxes (10).
This placement bodes well for North Carolina in the future, as the country has been widely rumored to be heading towards recession or already in recession. Having a state with a strong mind for businesses and keeping businesses strong means that North Caorlina can better weather the economic turbulence that may or may not be coming.
North Carolina was also identified as the state with the lowest top tax rate at just 2.5%, and there were several other instances where the tax system is clearly working well to help the state, business owners and citizens.
But perhaps one chink in state’s pro-business armor is the inclination to provide broad tax subsidies to companies to come and work here, also called corporate welfare.
“State lawmakers are mindful of their states’ business tax climates, but they are sometimes tempted to lure business with lucrative tax incentives and subsidies instead of broad-based tax reform,” the report argues. “This can be a dangerous proposition, as the example of Dell Computers and North Carolina illustrates. North Carolina agreed to $240 million worth of incentives to lure Dell to the state. Many of the incentives came in the form of tax credits from the state and local governments. Unfortunately, Dell announced in 2009 that it would be closing the plant after only four years of operations.A 2007USA TODAYarticle chronicled similar problems other states have had with companies that receive generous tax incentives.”
Though the example given by the Tax Foundation is over a decade old, this trend is still in effect. This year Chatham Count pledged $1.25 billion in tax breaks and incentives to a Vietnamese electric car manufacturer that would run for 32 years.
Though that may sound good, as John Locke’s Brian Balfour explains: “That means $4 billion worth of scarce productive resources, like steel, cement, computers, labor, and machinery will be directed to the production of electric vehicles based not on consumer demand, but political preferences.”
Given that the economic climate is uncertain, prudence would be good. Rather than handing out tons of unearned benefits to corporations, continue to invest in the future of North Carolina business.
