Discouraging Jobs and Investment

Last week we saw how a manufacturer – in this case Volvo – announcing it’s going to build its new plant in SC instead of NC ignites editorial writers and creates a firestorm of finger-pointing.

But amid the bloggers’ cries of “why not us” two facts have been ignored.

First, giving Volvo (or any new industry) $200 million in tax breaks means that someone else has to pay for the cost of streets and sewer lines and infrastructure to support their new business.

New development, especially huge new developments like this one, increase what government spends on roads, schools and other public facilities. Politicians who favor incentives will argue that, in the long run, those costs will be offset by future taxes the business pays. But it’s also a fact there will be a short-term deficit that has to be funded by taxpayers.

The second issue is more subtle. And has to do with fairness.

In 2013, so NC could better compete with our neighboring states, the General Assembly reduced personal and corporate income tax rates. But later, after the dust settled, we learned an odd fact: A little known glitch in the state tax code is actually increasing taxes manufacturers pay on job creation and investment in our state.

The glitch is the way we allocate the state taxes for big corporations. And the fix is straightforward: convert our tax system to the ‘single sales factor.’

Right now, NC doesn’t just tax our manufacturers on the products they sell in NC – we also tax them based on the number of workers they employ and how much they invest in plants and equipment. Other states – like SC – don’t have those additional taxes. And if we eliminate them here, we will also eliminate a big reason the state has to hand out cash to get a manufacturer – like Volvo – to build a plant in NC.

Consider this hypothetical example: A manufacturer who has a plant in NC sells its products all over the world.  Under the current law, let’s say the additional taxes it pays – for creating jobs and investments here – are $10 million a year. Going to the single sales factor (and just taxing manufacturers on NC product sales) will give that company 10 million reasons to create jobs in NC.

It’s not a new idea. For years we have allowed banks and utilities to use single sales. Why not allow it for the businesses offering the fastest route for working families to move from poor to middle class?

Single sales is not only smart tax reform – it’s fair. Because instead of helping a select few corporations with special tax breaks or cash incentives, we help every manufacturer, whether they are new to our state or have been here 100 years, do the very thing we need: Hire and invest in NC.

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