RALEIGH – There was a lot of talk early in the 2005 session of the North Carolina General Assembly that the state’s main tax-incentive program, the William S. Lee Act tax credits, would be substantially reworked this year. Sounded like a good idea.
Even among supporters of targeted tax incentives in general, the Lee Act in particular had come under fire for routing most of the tax breaks to areas already prospering economically and for subsidizing companies that would have come to North Carolina anyway and don’t remain for long – all contrary to the original intent. If state leaders were going to draw up a tax-incentive program from scratch, it seemed, the result wouldn’t look much like the Lee Act.
The push for reforming the incentives this year came from, among other sources, the administration of Gov. Mike Easley. Commerce Secretary Jim Fain had previously defended the Lee Act’s reauthorization in 2003, but by February 2005 was talking about "a set of new, individual credits" that would avoid some of the problems. NCCBI, which acts as North Carolina’s statewide chamber of commerce, also reportedly favored reforming the Lee Act, as did several key legislators.
All this talk has come to naught. On Tuesday, large majorities in both the NC House and Senate voted to reauthorize the Lee Act virtually as is for another two years. Citing potential business recruitments in Nash and Gaston counties that might be able to take advantage of them, advocates said that now was not the time to reform the tax credits. And so we are stuck with a program that most interested parties admit is deeply flawed.
One possible defense for the legislature’s inaction could be that members have been too busy working on other issues. They’ll have to try that one out on someone else. I haven’t spent as much time at the Legislative Building this year as in years past, but by all accounts things aren’t all that different. While there are late nights and rush jobs, they come in spurts that punctuate stretches of inactivity. Certainly since the beginning of the year there has been enough time for lawmakers and the administration to make progress on the issue.
Perhaps the real problem is that everyone means something different when advocating “reform” of the Lee Act. Some want to make it harder for firms outside of distressed areas to qualify for credits. Others want to make it easier, reasoning that it is better to focus on attracting businesses somewhere in North Carolina than worrying about precisely where. There’s also the issue of wages. Some think that current policy makes it too easy for firms to qualify for tax credits for jobs with only modest salaries. Others want to go precisely in the other direction – to toughen the wage standards and require recipient firms to provide health insurance.
Since my preferred policy is to "reform" the Lee Act into the nearest trash can, I can’t say I belong among any of those factions. I am wondering this, however: do folks at the General Assembly really believe there will be more consensus in 2007 on what to do about incentives? I can think of only one scenario in which that’s likely: a victory in court by the forces of light.
Hood is president of the John Locke Foundation.