June 17, 2010

Click here to view and here to listen to Joseph Coletti discussing North Carolina’s latest unemployment data.

RALEIGH — North Carolina lawmakers should resist calls for more government spending on short-term, targeted “jobs” packages as they look for ways to boost the state’s employment picture. That’s the advice the John Locke Foundation’s top budget expert offers after reviewing new state unemployment data.

“While I’m no fan of the gimmicks some lawmakers have put forward in the name of creating jobs, I have to laugh at left-of-center critics who tout the benefits of even more expensive gimmicks,” said Joseph Coletti, JLF Director of Health and Fiscal Policy Studies. “Those critics are correct when they say state House and Senate jobs plans will do little to create jobs. Unfortunately, the left-leaning critics’ prescriptions would throw good money after bad — directing more taxpayer resources toward policies and programs that don’t work.”

Broad-based tax relief and regulatory reform would do much more good than targeted grants and tax breaks, Coletti said. “The Senate had a good idea when it proposed in its budget to lower tax rates for some businesses,” he said. “Unfortunately, the Senate’s proposed tax rate cut was too limited to create much economic benefit.”

“All businesses ought to be taxed at the same rate,” Coletti explained. “That tax rate should be lower than it is today to help North Carolina compete with other states — especially neighboring Southeastern states with more favorable tax climates. But the only way we can get there is with lower spending.”

The N.C. Employment Security Commission’s latest report lists the state’s unemployment rate at 10.3 percent for May, down five-tenths of a percentage point from April’s rate of 10.8 percent.

February marked a full year of unemployment in excess of 10 percent. May marks the 15th consecutive month in that territory despite the fact that the rate has dropped for three straight months. North Carolina’s unemployment rate is 0.6 percentage points higher than the national average of 9.7 percent.

“North Carolina will have a hard time returning to the national unemployment average or — better yet — falling below that average rate as long as lawmakers and others tout jobs plans that don’t work,” Coletti said. “Among the bad ideas is the so-called H.E.L.P. Small Business Act, House Bill 1721. It basically offers businesses $300 a year for creating a new job that must stay in place for three years. A business owner who would create a job solely to take advantage of that credit probably should rethink being in business at all.”

The answer does not involve a larger or different type of targeted credit, Coletti said. “Entrepreneurs will be more inclined to start or expand businesses in North Carolina when they’re convinced that it makes economic sense to do so,” he said. “North Carolina can maximize the number of entrepreneurs who will make that choice by lowering the tax burden for everyone and reducing regulatory hurdles.”

“When lawmakers use targeted grants or credits to benefit businesses of a certain size or in a certain industry, they’re forcing the rest of the state’s taxpayers to foot the bill,” Coletti added. “In essence, government is deciding which businesses should win and which businesses should lose. Not only is that bad philosophically, it’s not an effective way to boost North Carolina’s economy.”

Seasonally adjusted employment increased) in May by more than 14,700 workers to a total of 4.09 million, according to the ESC. Unemployment decreased by 20,700 workers, with more than 472,000 workers now listed as unemployed. Unemployment has decreased by 23,600 people in the past year. The state rate in May 2009 was 10.9 percent.

Rather than throw more money at existing job-creation gimmicks or look for new ones, lawmakers should support policies that will set the stage for strong economic growth, Coletti said. “A more viable strategy involves lower, more competitive tax rates with fewer distortions linked to targeted tax breaks and grants,” he said. “The strategy also includes a more sustainable level of state spending and fewer regulatory roadblocks for new and expanding businesses.”

For more information, please contact Joseph Coletti at (919) 828-3876 or [email protected]. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or [email protected].