RALEIGH – A lawsuit filed Thursday by the North Carolina Institute for Constitutional Law offers the prospect of scaling back state incentive policies that hinder rather than hasten economic development, according to the head of the John Locke Foundation.
John Hood, chairman and president of the Raleigh-based think tank, said that targeted tax credits and other state or local subsidies to individual companies are based on the mistaken notion that government policymakers can accurately predict which business deals will lead to net economic payoffs.
“Taxpayers shouldn’t be forced to bet their money on whether a given business venture will succeed or fail,” Hood said. “The available evidence suggests that many companies get incentives for investments they would have made anyway, while other subsidies are squandered on business plans that never really pan out.”
The Locke Foundation has studied economic-incentive policies for many years, examining both the academic literature as well as records of specific incentive grants in North Carolina and other states. While subsidies sometimes appear to play a role in a particular job announcement, Hood said, the net effect on economic growth is often negative.
In many instances, incentives essentially result in a transfer of wealth from existing businesses in a community to new firms, often large out-of-state corporations, he observed. The revenue that businesses collect from their owners, workers, and customers – in the form of taxes on income, property, and sales – help to offset the costs of delivering government services such as a company’s use of public infrastructure or public education for its employees.
“When a government picks a few favored firms and virtually wipes out their tax liability with incentives, it doesn’t wipe out their use of government services,” Hood said. “So to pay rising bills for schools and other public expenditures, the government ends up raising taxes on existing firms, entrepreneurs, and households, which actually hurts the economy.”
The Locke Foundation’s monthly newspaper, Carolina Journal, has published an ongoing investigative series on economic incentives that can be found online at www.CarolinaJournal.com. For more information about economic incentives in North Carolina and the potential effects of the new lawsuit, call Hood or JLF Vice President Roy Cordato at 919-828-3876.