Opinion: CJ Opinion

Apple’s sweetheart deal has a rotten core

The economy is rigged, but not in the way Bernie Sanders thinks – capitalism is not the problem. Instead, an active, hands-on economic approach has allowed corporations and politicians to rig the tax code in their favor. 

 To find an example of what I am talking about, look no further than the recent announcement from the North Carolina Department of Commerce that Apple has selected North Carolina’s Research Triangle as the location for its newest research and development campus.  

Apple, who became the first company to record a market value of $2 trillion in 2020, will receive up to $845.8 million in taxpayer incentives over the next 39 years. To put that in perspective, a child born this year could be elected as president of the United States before North Carolina has finished paying off this commitment to a multi-trillion dollar, internationally invested, Wall Street traded company.  

Apple’s incentives will come from the Job Development Investment Grant (JDIG). JDIG is a discretionary incentive program that provides cash grants directly to new and expanding companies to offset the cost of locating or expanding a facility in the state. In short, JDIG is what we call “corporate welfare,” and both Democrats and Republicans are guilty of picking winners and losers with taxpayer money. 

But what is corporate welfare, and what is wrong with it? Corporate welfare, strictly defined, is any government program that provides unique benefits or advantages to specific companies or interests. These could include programs that offer subsidized loans or insurance to companies, specialized tax refunds to particular industries, or direct grants to businesses. North Carolina has several such programs, such as grants for film production, a statewide county property tax abatement for solar energy installations, and of course, JDIG. To say it another way, corporate welfare is any government spending program, which subsidizes some businesses at the expense of higher tax rates for other companies and individuals. 

The first problem with these programs is that by giving selected businesses and industries unique advantages, corporate subsidies put businesses and industries which are less politically connected at a disadvantage. Programs like JDIG foster a toxic relationship between business and state government. All too often, the firms and industries that are the most politically connected are the largest recipients of government handouts. By way of example, Apple was able to ink one of the largest corporate incentive deals in state history and has nine registered lobbyists in North Carolina, according to the Secretary of State’s office. A fair tax code would treat all businesses, regardless of political connectivity, equally. 

The second problem is that government has an awful track record of picking winners and losers. We know about the Solyndra debacle, created by the federal government, but the state government is not much better. In fact, according to a  2019 report  from WRAL, “a third of the incentive projects announced under North Carolina’s largest economic development programs in the last decade failed to generate a single new hire.” 

Third, corporate welfare programs are anti-capitalist. Sen. Bernie Sanders and Congresswoman Alexandria Ocasio-Cortez have called these programs “unfettered capitalism,” but nothing is further from the truth. Corporate welfare programs, in fact, fetter corporations to the actions of government, and create those circular toxic relationships I mentioned above, and lead to the creation of what the Cato Institute has described as the “statist businessman.” 

Finally, corporate welfare is a slap in the face of North Carolina’s image as a national leader on state tax reform. North Carolina passed a string of historic tax reforms beginning in 2013. Those reforms transformed North Carolina from one of the worst states to do business to one of the best. According to the Tax Foundation, North Carolina has moved from the seventh-worst state business tax climate to the tenth best. And the economic results have been profound. 

From January 2014 until March 2021, North Carolina created more than 382,000 jobs – an average of 4,393 jobs per month. By comparison, Apple’s new deal will generate less than one month’s average statewide job growth. 

And while the Covid-recession has caused a bump in the road for the state and national economies, North Carolina has seen remarkable wage growth with the implementation of the tax reforms. According to a 2019 report from the state Department of Commerce, North Carolina’s “total private sector year-over year wage growth rates have exceeded those of the nation nearly every month since June 2015.”  

If North Carolina is going to continue its economic growth, sweetheart tax deals for specific companies will not get the job done. A 2020 study from Columbia University did not find that “firm-specific tax incentives increase broader economic growth at the state and local level.”  

However, there appears to be an addiction to ribbon cuttings in downtown Raleigh. As a candidate, Gov. Roy Cooper was opposed to “corporate tax giveaways.” And Republican leadership at the General Assembly led the charge on tax reform that has become a model for other states. For the state to continue down the path of sweetheart, rotten Apple deals means that state lawmakers are turning their back on a model for economic success. 

North Carolina taxpayers should not be celebrating Apple locating to the Research Triangle. Taxpayers should be screaming toward Raleigh that they are “taxed enough already.” 

This opinion piece is included in the May print edition of Carolina Journal.