RALEIGH – There’s a big difference between incrementalism and gimmickry. Someone ought to advise Gov. Beverly Perdue of the distinction.
Hey, maybe that someone should be me!
Look at what the governor is proposing to encourage job creation in North Carolina’s still-shaky economy. When the General Assembly comes back next week, Perdue will reportedly propose a multi-million-dollar package of subsidies and tax incentives for employers. It will include:
• $15 million in state money to give small companies $1,000 for hiring of each person unemployed for at least 60 days.
• $15 million for the One North Carolina Fund – the governor’s incentive kitty (which is kind of puzzling, given the news that since 2005 fewer than a third of the 247 companies awarded grants out of the fund have ended up claiming them).
• A $1 million guarantee of small-business loans issued by the Self-Help Credit Union. Hmm.
• Another $7 million in separate grants to biotech, biofuels, and “green jobs” projects.
• The extension of a $5 million tax-credit program for small companies that offer health-insurance coverage.
• Some $3.5 million in other tax credits, including extra money for hiring in distressed NC counties.
In a state economy that encompasses tens of billions of dollars in transactions every year, the dollar amounts in Gov. Perdue’s plan may seem trivial. Indeed, the plan won’t have a discernible effect at all on economic activity in North Carolina, unless you happen to be in the business of lobbying the legislature on behalf of business groups. But that’s not the real problem with the governor’s proposal.
Some tax policies can actually have economic consequences far greater than the readily apparent fiscal impact – for example, if the policies unlock investment dollars trapped in tax shelters or create stronger incentives for individuals to work, save, invest, and take risks. More importantly, however, incremental steps in favor of a worthy long-term goal are always worth encouraging. Unfortunately, Perdue’s plan largely consists of incremental steps taken in the wrong direction, towards fiscal gimmickry rather than fiscal reform.
North Carolina would be more prosperous under a tax system that maintains low marginal tax rates, broad tax bases, and a benign neutrality when it comes to how, where, and why private businesses make decisions to advance their viability and profitability. The state shouldn’t try to monkey around with make-or-buy decisions – whether companies produce certain inputs in-house or purchase them from vendors – or decisions about allocating company resources among workforce expansion, workforce improvement, capital purchase, debt retirement, or other needs. Finally, and this may be the hardest for politicians to accept, the state shouldn’t favor small businesses over larger ones when it comes to tax and spending policies.
North Carolina needs to be more hospitable to businesses of all shapes and sizes. It shouldn’t try to plan its economy or stack the deck. It is true that current incentive policies actually favor large firms – they are the ones most likely to capture the attention of politicians and meet the threshold of significance justifying private negotiations for incentive packages. This is a problem. The solution, however, is not to set up parallel subsidy programs for small firms. The solution is for the state to stop subsidizing firms, period.
I don’t believe in making the perfect the enemy of the good. Because it would be impractical to expect North Carolina immediately to replace its rickety tax code with a flat-rate consumed-income tax or abolish all corporate subsidies during the 2010 legislative session, I’d settle for incremental steps in each direction. For now, it seems, the best that can be hoped for is that the legislature take no steps at all.
In other words, don’t just do something, stand there.
Hood is president of the John Locke Foundation.