It felt like a stick in the eye when the NC Commerce Department announced they were paying Corning Optical Communications $2.35 million in taxpayer funded incentives to move their headquarters from Catawba County to Mecklenburg County. It appears I’m not the only one feeling poked.
Even beyond using taxpayer money to help Corning move 500 jobs between NC counties, most people feel uncomfortable with idea of paying cash to a company to move to NC. It’s true that it sometimes works. It’s equally true that a corporation’s commitment to NC may not last any longer than the cash payments and the company moves on.
So why is paying corporate ‘incentives’ such a seemingly unstoppable juggernaut? The answer is politics. Woven into the state’s government and political fabric is a cluster of people who promote incentives for a straightforward reason – their livelihood depends on it. Those lawyers, lobbyists, and assorted political appointees make a better than average living advocating for government to hand out taxpayer dollars to out-of-state corporations – so they fight ending the incentives program.
But in the new NC business climate a couple of crucial factors have changed.
For years, NC had the highest Corporate Income Tax (CIT) rates among the southeastern states. So, the incentives cluster did, then, have a valid argument that cash was necessary to lure new corporate employers to NC – because our tax rates were higher than our neighbors. The result was a convoluted system of government handouts that, oddly enough, punished long term NC job creators while providing a steady stream of cash to support the incentives cluster and to keep politicians busy cutting ribbons on new plants.
Then, in 2013, the General Assembly started doing two things: 1) Closing tax loopholes and 2) Using those savings to cut tax rates. In all, the legislature has cut the Corporate Income Tax rate 57% — from 6.9% to 3%. You would think as the corporate tax rate dropped the need for cash incentives would fall too. But to the incentives cluster, none of that matters – instead the lobby continues to holler the same old line: ‘We have to give incentives because everyone else does’.
How about trying something new?
Let’s answer a simple question: How much lower does NC’s CIT rate need to be before incentives aren’t necessary and we treat all job creators the same?
Have we reached that point now? Which matters most: Lower tax rates? Or cash handouts to a few corporations?
After all, the incentives lobby perpetually crying, “We know you cut corporate tax rates 57%… but we still need to hand out ‘more’ cash to corporations” – cannot be the correct answer.