RALEIGH — As President Bush prepares to announce his $600 billion economic-growth package today at the Chicago Economic Club, local economists are pointing to proposed changes in the taxation of corporate dividends and capital investment that could boost growth and job creation in North Carolina.
Among such analysts is Dr. Roy Cordato, vice president for research and resident scholar at the Raleigh-based John Locke Foundation. He reviewed several items of the Bush package that would likely confer disproportionately large benefits on North Carolina’s economy, which has been uncharacteristically trailing the nation in the pace and scope of its economic recovery.
“North Carolina has a large stake in the success or failure of the president’s growth plan,” Cordato said. “In addition to the impact on households and businesses, the only long-term solution to the budget woes of our state and local governments is to get economic growth back on track, something the Bush program will help us to do.”
The linchpin of the proposal is an elimination of the current double-taxation of corporate dividends, which are currently considered taxable income to both the corporation and to its shareholders. Making dividends tax-deductible to investors, as the president proposes, would reduce the cost of capital formation, boost the stock market, and particularly stimulate investment in the very capital-intensive manufacturing industries experiencing recent problems in North Carolina, Cordato concluded.
Another key provision would increase the cap on capital expenses that small businesses can deduct immediately from their taxable income, or “expense,” which Cordato said would help start-up companies that often serve as a major source of employment growth.
Finally, North Carolina has some of the highest marginal tax rates on individual income in the United States, so the president’s proposal to speed up scheduled reductions in federal income tax rates will be especially welcome here, Cordato said.
“The Bush plan would help to alleviate the tax bias against working, saving, and investing that North Carolina politicians have managed to create in our state over the past couple of years,” he said.
Cordato cautioned that the president’s proposals should be only the first step in a series of policy moves designed to reduce the tax burden, reform the tax code, and remove other barriers to economic growth. These should include spending restraint by the federal government and states such as North Carolina; reforms of costly and counterproductive regulations; and bringing choice and competition to sectors currently dominated by government-protected monopolies.