by Paige Terryberry
Senior Analyst for Fiscal Policy, John Locke Foundation
Since the release of North Carolina’s conference budget on November 15th, there has been much speculation over the budget’s promise of a large grant award to a qualifying company that will invest in Randolph County’s “megasite industrial park.” State and local leaders detailed a package of performance-based incentives valued at more than $435 million. On Monday afternoon, Gov. Roy Cooper formally approved Japanese automaker Toyota as the grant recipient.
Though $435 million is a significant investment by state and local governments, it pales in comparison to the billions Toyota will invest over time in the region.
North Carolina was in a bidding competition for Toyota with nine other states. Yes, government subsidies are unfair, discriminatory against small businesses, and create barriers to entry. Companies court multiple states to increase the potential perks they receive. It is likely, however, that the handouts were not the primary reason for Toyota’s choice.
As my colleague Jon Sanders writes:
“Research published in 2015 in Economic Development Quarterly surveyed executives from 150 companies that received economic development incentives from North Carolina and 465 companies that did not. Not only did most executives not even know if their company had received incentives from the state, but also they listed 14 factors more important than incentives to a state’s business climate.
The top three most important items the executives considered were skilled labor, low regulations, and low corporate taxes. Low property taxes, good community colleges, and low personal income taxes were the very next three.”
Toyota’s decision was likely highly influenced by North Carolina’s favorable tax climate and the prospect of the corporate income tax phase-out. The reforms of the last decade cannot be ignored. North Carolina has gone from having the highest corporate rate in the Southeast before the 2013 tax reforms to championing the lowest corporate tax rate today. Though the government offered lucrative incentives, North Carolina’s sound and competitive tax climate convinced the company to break ground in the Tarheel State.