Elected leaders pursue job-creation gimmicks as N.C. employment woes linger

May 20, 2010

RALEIGH — As North Carolina continues to struggle with one of the nation’s worst unemployment rates, elected leaders are pushing job-creation gimmicks and ignoring policy changes that would be more likely to produce jobs. The John Locke Foundation’s top budget expert offers that assessment in response to the state’s latest unemployment data.

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

“Look closely at the ideas Gov. Bev Perdue and legislative leaders have put forward, and you’ll find that they’re not serious about promoting policies that create jobs for North Carolina,” said Joseph Coletti, JLF Director of Health and Fiscal Policy Studies. “Instead they’re pushing gimmicks that sound good until they face close scrutiny. There’s no better example than House Bill 1721, the H.E.L.P. Small Business Act.”

“From the silly acronym in the bill’s title to the details in the legislation itself, this bill falls short of the mark,” Coletti explained. “It creates a $1,000 tax credit for small businesses that hire people. But here’s the catch: You have to keep the job that generates the credit for three years. So the tax credit works out to $333 per year based on your faith in the economy to be able to sustain the same person on staff for three full years.”

“If you downsize at any point in the next three years, you have to repay the tax credit,” Coletti added. “This is not the type of policy that’s likely to put a dent into North Carolina’s lingering unemployment woes.”

The N.C. Employment Security Commission’s latest report lists the state’s unemployment rate at 10.8 percent for April, down three-tenths of a percentage point from March’s rate of 11.1 percent.

The April rate is North Carolina’s lowest reported rate in a year. Yet the state still reports unemployment nearly a full percentage point higher than the national average. North Carolina now ranks No. 11 in the nation in unemployment.

February marked a full year of unemployment in excess of 10 percent. April marks the 14th consecutive month in that territory. The state’s unemployment rate has been at least one full percentage point higher than the national rate for eight of the last 12 months.

“We’re not going to lose our dubious unemployment ranking by relying on gimmicks like the so-called H.E.L.P. Small Business Act,” Coletti said. “Any business that hires somebody based on that legislation’s tax credit shouldn’t be in business. Not only is the incentive small, but the level of micromanagement from the state would make the new tax credits more trouble than they’re worth.”

“For example, a business that needs to downsize for any reason would have an incentive to protect the grant-supported job, even if that’s the job that makes most sense to cut,” Coletti explained. “It’s also not clear how long a person has to be on staff and whether the business’ average number of employees has to rise for the firm to qualify for the tax credit.”

“A small company would have to provide state government with detailed reporting, then lose all of its privacy as a firm,” Coletti added. “That’s because the Commerce Department will publish a report detailing credits claimed ‘itemized by taxpayer.’ Other statutory tax credits are aggregated, so we don’t see who gets them. This may make sense from a transparency perspective, but it’s another cost for a small business. It’s not a great incentive for businesses to add jobs.”

Seasonally adjusted employment increased in April by more than 22,700 workers to a total of 4.07 million, according to the ESC. Unemployment decreased by 16,500 workers, with more than 491,000 workers now listed as unemployed. Unemployment has increased by more than 5,000 people in the past year. The state rate in April 2009 was 10.7 percent.

Lawmakers can take steps to boost employment without resorting to gimmicks, Coletti said. “If you want businesses to grow and hire people, really reduce government spending to a sustainable level and provide a better tax climate,” he said. “Micromanaging small businesses from the Legislative Building or the Executive Mansion is not the way to put North Carolina on the right track for adding jobs.”

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].