by Jon Sanders
Director of the Center for Food, Power, and Life, Research Editor, John Locke Foundation
A bill before the North Carolina Senate would create a new state tax credit for small businesses that get the federal New Markets Tax Credit (NMTC), if they decide to make these federally credited investments in North Carolina. The idea would be to further incentivize investment in poorer areas in the state.
The small businesses would already be qualified for the 39 percent tax credit, spread out over seven years, on its investment. They have to satisfy federal definitions in making “Qualified Equity Investments” in “Qualified Community Development Initiatives.” They must furthermore have fewer than 500 employees and locate in a high-poverty county.
The state tax credit that would be established under Senate Bill 522, “New Market Jobs Act,” would be technically styled a “reduction” to the qualifying small business’ state premium tax liability, though it would “be afforded the same property and contractual protections as a credit.” It would be worth 58 percent of the investment and also spread out over seven years (no credit would be claimed in the first two years, 11 percent credit would be claimed each year in the third and fourth years, and 12 percent credit would be claimed each year in the remaining years).
If the state has enough tax credits available, they apparently could be allocated to the investments of small businesses that haven’t received the federal credits.
Trust the tax reforms; no need to restock tax credits
Those reforms are empirically proven ways to boost economic growth, alongside regulatory reform and transportation reform. The beneficial effects of these recent changes are slowly beginning to emerge.
It would be hasty and self-defeating for state leaders to return to questionable economic practices, awarding tax credits to select companies for particular activities while effectively charging higher tax rates on other companies.
If state leaders are unhappy with the pace of increased investment, economic growth, and job creation, then they should consider scrapping the corporate income tax altogether — which would be an all-comers economic development incentive, cutting the tax for everyone without playing favorites.