Over the weekend, a reporter asked me to comment on Senate Bill 493. It’s the latest effort to tweak North Carolina’s Job Development Investment Grant, the state’s primary targeted tax incentive program.
I’m not sure how much of my response will end up in the final story. You’ll see the full response here:
It’s possible that the people who recruit companies to come to North Carolina would cite Senate Bill 493 as a make-or-break part of the recruitment process. But it’s impossible to know whether these extra incentives really make the difference, or if the companies have simply done a good job securing a better deal from N.C. taxpayers for a corporate move that was already going to take place.
The bottom line is that targeted tax incentives embodied in the Job Development Investment Grant program represent bad public policy. Period. Lawmakers are much better off pursuing across-the-board tax rate cuts like those promised in Senate Bill 337. If tax reformers believe that bill doesn’t do enough, they could cut the corporate income tax rate again. That action would help more businesses now operating in North Carolina — along with those considering moving here — and not just the companies favored by elected officials and government bureaucrats.
John Hood explained recently why it makes sense for lawmakers to continue focusing on a lower corporate income tax rate.
As for reducing the personal income tax by another quarter-point, it represents welcome relief for many households and will boost economic growth a bit. But given the circumstances, I think there’s a better lever to push: the corporate income tax.
Haven’t lawmakers already slashed North Carolina’s corporate rate by a lot? Yep. Our state now has the lowest rate of any state that taxes corporate income. That’s good news, because when it comes to making states more attractive places to invest and create new jobs, the economic benefit per dollar from corporate-tax cuts is likely higher than from any other kind of tax relief. …
… Here’s my recommendation, then. North Carolina should just phase out its corporate-income tax entirely over the next two years. The fiscal impact (around $900 million) would be less than the proposed cuts in personal income taxes and yet confer broad benefits on employees and consumers.
