Beginning in 2013 with the passage of tax and regulatory
reform, the North Carolina legislature has begun consciously
to pursue policies that are meant to expand economic
growth on a statewide level (See sections titled “Tax Reform”
and “Regulatory Reform”) i.e. policies aimed at allowing
businesses to act efficiently and entrepreneurs to innovate
and pursue opportunities as they see them.
For decades, North Carolina pursued what is generally
referred to as “economic development policy,” which is
distinctly different from economic growth policy. Economic
development policies focus on stimulating specific localities,
regions, and businesses within the state, not growing the
state’s economy as a whole.
The Department of Commerce (DOC), which describes
itself as “the state’s leading economic development
agency,” notes that it “works with local, regional, national
and international companies,” giving them assistance
and resources necessary to meet their unique business
needs.” Industries that the state, via the DOC, takes pride
in subsidizing include tourism, the film industry, sports
development, telecommunications, biotechnologies, health
care, and financial services. But because the state cannot target
one industry, locality, or region for “economic development”
spending without draining resources from other parts of the
state, these polices end up being little more than state central
planning in which government picks winners and losers.
The premise behind policies to promote economic
growth is that private entrepreneurs using their own money
or the money of voluntary investors know best how resources
should be allocated. The problem facing policymakers then
is to see to it that property rights are secure, ensure that
entrepreneurs can use their property rights in any way they
believe will be most productive, and implement tax and
regulatory policies that do not get in the way of this process.
Economic development policies divert resources from this
process, thereby moving resources to less efficient uses,
hindering economic growth.
During the 2015 legislative session, nearly every proposal
to implement new or expand existing economic development
programs was passed into law. This schizophrenic approach
to economic policy is like trying to increase the speed
that a boat is traveling by investing in a bigger and more
powerful motor while simultaneously tossing a heavy anchor
over the side. Sure the boat may continue to move forward
and indeed it may increase its speed if the force of the new
engine is greater than the drag of the anchor. But clearly the
new engine would work even better if the anchor is lifted
- Over the past several years North Carolina lawmakers
have begun to craft policies with an eye toward enhancing
economic growth. They have done this primarily by
implementing pro-growth tax and regulatory reform and
cutting taxes overall. (See sections titled “Tax Reform”
and “Regulatory Reform”.)
- Economic growth rates in North Carolina, relative to the
rest of the country, attest to the success of this approach.
Since 2013, the average economic growth rate in North
Carolina has been well above the national average.
- North Carolina’s economic development policies have led
the state to create dozens of special programs that include
tax breaks and subsidies for favored industries and companies,
all of which distort resource allocation.
- The implicit belief behind economic development policy
is that the decisions of entrepreneurs in a free market
cannot be trusted. “Experts” in the state bureaucracy believe
they can effectively decide what kinds of businesses
and industries are best for the state economy and then
centrally direct what would otherwise be private-sector
resources toward chosen companies. By definition, these
resources are being diverted from other, potentially more
productive, opportunities that market participants may
- Economic growth policy would seek to remove government
from the resource allocation picture entirely,
creating an environment that encourages private-sector
- True entrepreneurship, which is about identifying and
investing in opportunities for profit in the free market, is
what lifts economies out of recessions and creates jobs.
- Changes to the state’s corporate income tax eliminated
some of the special tax breaks that had been part of the tax
code for some time. This was a step in the right direction.
- North Carolina’s tax system still penalizes investment and
entrepreneurship by double, and in some cases triple, taxing
the economic returns to entrepreneurial activities and
investment, thereby hindering economic growth.
- • Business subsidies in pursuit of economic development
might be most egregious at the local level with city and
county governments in fierce competition with one another
to attract particular investments. All of this activity
is authorized by the Local Development Act of 1925.
- Repeal all economic development policies that grant
special favors to particular businesses or industries.
These policies include The One North Carolina Fund,
JDIG (Job Development Investment Grants), and the
Golden Leaf Foundation.
- Repeal the Local Development Act of 1925 that authorizes
local government entities to harm economic
growth by pursuing economic development policies
using property tax collections to subsidize favored businesses
- Continue to pursue pro-growth tax reform by eliminating
tax biases against investment and entrepreneurship
by creating universal tax-free saving and investment accounts,
abolishing or reducing taxation on capital gains,
and allowing businesses to deduct all expenses from
their taxable income in the year that they are incurred.
(See section on Tax Reform.)
- Continue to pursue regulatory reform by looking for
ways to reduce outdated or ineffective regulations when
the benefits don’t outweigh the costs.
- . Eliminate or make changes to occupational licensing
laws that may block entrepreneurship. (See section on