Is keeping the franchise tax high really worth vetoing the budget?

North Carolina is one of only 16 states in the U.S. with a franchise tax. What on earth is a franchise tax?

As Roy Cordato explained, it’s a double tax on corporate assets. That doesn’t sound very good. It sounds worse the more you read about it:

  • It’s a tax on a corporation’s net value or worth
  • The tax’s floor is so small ($200) even the smallest corporation can’t avoid it
  • It’s a tax on a corporation in addition to the corporate income tax
  • It’s a tax on what its assets are worth, not what it earns
  • So a business’s expenditures on capital and equipment, fully deductible from the corporate income tax, end up taxed after all, under the franchise tax

Cordato called this a “back-door method” of taxation, “inconsistent with both good economics and good government.”

“Ideally,” he wrote, “North Carolina should follow the lead of most other states and abolish the tax.”

The state budget would not follow the lead of most other states. It would, however, reduce the franchise tax. The estimated effect of this change would allow North Carolina companies to retain $255.2 million in 2020-21.

Bad rationale for a veto

In announcing his veto of the budget, Gov. Roy Cooper stressed that in his view, reducing the franchise tax would come at the expense of teacher pay raises: “Instead of another corporate tax break, let’s pay our teachers and show them the respect they deserve.”

Cooper made that announcement a day after announcing grants of over $56 million to a single corporation. His budget veto over lowering the franchise tax came after giving nearly $70 million to 35 different corporations — in just the last three months.

Not to mention that he and his Commerce Department have spent over half a year refusing to answer Tyler Duke of WRAL’s requests for details on their incentives bid to Apple. Cooper has steadfastly — perhaps illegally — refused to break secrecy.

So it’s still a mystery how much “teacher disrespect” Cooper was prepared to fork over to the … richest corporation in the world.

Want to guess what else is inconsistent with good economics and good government? Corporate welfare and a truculent refusal to conduct state business in the open.

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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