Tax incentives for everyone, not just the favored few

Leonard Robinson III writes for Carolina Journal today about a new study on tax incentives:

The economic costs of corporate tax incentives outweigh their benefits, a new study by N.C. State University researchers says.

The study focused on three types of tax incentives — investment or job creation tax credits, property tax abatements, and research and development tax credits.

The results are in keeping with plenty of other studies into tax incentives. They also make sense once you stop to think about it.

For tax incentives to be economic boosters for the state, rather than just the recipient, here’s what you have to assume is actually true: Politicians are (a) better at spotting investment opportunities than professional investors but (b) won’t use their own money on these sure-winner investment opportunities because they want the state to reap all the benefits.

I wrote a few months ago about research results into what even executives whose companies were receiving incentives from North Carolina preferred:

Even incentives recipients think lower tax rates across the board would be better

As if to drive home the point, executives of incentivized companies were asked which was better, to have”select incentives to certain businesses” or “reduce taxes affecting business taxpayers and their owners.” Only one out of five (21.7 percent) said select incentives were better. (Just 14.7 percent of executives at companies not receiving incentives said incentives were better.)

In fact, business executives could list not just one or two, not even three or four, but 14 factors more important to the state’s business climate than tax incentives. They were:

  1. skilled labor
  2. the state regulatory burden
  3. state corporate tax rate
  4. local property tax rates
  5. community colleges
  6. state personal income tax rate
  7. highways
  8. information technology infrastructure
  9. four-year colleges and universities
  10. housing costs
  11. environmental regulations
  12. land prices
  13. workforce training programs
  14. major airport

I’ve written for years that the rhetoric propping up tax incentives necessarily requires admitting corporate tax rates are too high. I’ve pointed out that it also implies the actual solution: cutting taxes across the board, not just for the favored few.

I call it the all-comers economic incentive. “All-comers” because it’s wise to try to incentivize hosts of small, unseen expansions and relocations instead of focus exclusively on the “seen” big corporate moves.

As I wrote:

Is there a way to make it even more affordable for film companies to do business in North Carolina without being unfair to other taxpayers? Especially businesses who are already here and already creating jobs and economic benefits for North Carolinians? Yes, there is, and in fact state leaders are already doing it.

By giving tax cuts to all industries rather than just this one or that one, North Carolina has had brisk economic growth, outpacing national and regional averages. It’s created an environment where people can produce economic development, and they’ve responded.

Research continues to show it’s the better path.

Jon Sanders / Director of Regulatory Studies

Jon Sanders studies regulatory policy, a veritable kudzu of invasive government and unintended consequences. As director of regulatory studies at the John Locke Foundation, Jo...

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