As they deliberate adjustments to next year?s state budget, state lawmakers are hearing renewed calls from a small but vocal section of the state’s business community to reduce the state’s business taxes. These tax cut proponents are attempting to prey on the common sentiment that the state must do something to stimulate the economy. Unfortunately, a close look at the facts shows that cutting business taxes will do little, if anything, to improve the outlook for working families in our state. Indeed, there is far more evidence that business taxes are already low and in serious need of reform in North Carolina than there is evidence that corporate taxes need to be reduced.

The most oft-cited evidence of North Carolina?s ?high? tax burden on businesses is the fact that we have the second highest top corporate income tax rate in the southeast. What is almost never mentioned is the fact that North Carolina’s current corporate income tax rate of 6.9 percent ranks 29th in the nation, hardly sticking out like a ?sore thumb? deterrent to business investment as some claim. Furthermore, the state’s corporate income tax rate is only one of many measures of the overall business tax burden in North Carolina. According to two recent studies that account for a broad range of state and local taxes paid by businesses (including our relatively low property taxes), North Carolina’s overall business tax burden is comparatively low. A study conducted by the Public Affairs Research Council of Louisiana in 2002 ranks North Carolina’s total state and local tax liability on an average manufacturing firm as 9th (rural) and 10th (urban) out of the twelve states in the South. Another comprehensive study published in 2003 by the Council on State Taxation ranks North Carolina between 47th and 49th in the nation on all four of its measures of business tax burden.

In addition to being comparatively low, there is growing evidence that the state corporate income tax is in dire need of major reform. In 2003, the non-partisan Multistate Tax Commission released a study showing that North Carolina lost an estimated $300 million due to tax shelters and loopholes in fiscal year 2001 ? 65 percent of the total corporate income tax revenues received that year. The share of state tax revenues from corporate income taxes in North Carolina has been falling steadily for the last fifty-plus years and now stands at only 6%, begging the question ?what is the fair share of tax revenues that should be paid by corporations??

One of the most basic principles of economics is that the true cost of any decision is not the cost in dollars and cents of the immediate decision ? in this case the revenue lost by any cut in the tax. The true cost, rather, lies in the benefits that would accrue from making a different choice, i.e. the ?opportunity cost.? Consider that in 2003 North Carolina was ranked #1 in business climate by Site Selection magazine for the third year in a row. Now consider that just last week we learned that North Carolina has slipped to 41st among all states in a new state-by-state study that reports on the well being of America?s children. During the current fiscal crisis, lawmakers have, in fact, cut programs such as adolescent pregnancy prevention and nutrition programs for pregnant women and infants that would help improve child well being. Which of these rankings is truly calling out for the state?s attention?