RALEIGH — The rap on Mike Easley used to be that he was remote and disengaged. Now it seems that the governor has shifted dramatically from recluse to busybody, working furiously to present North Carolinians with the image that he is, well, working furiously to boost their stagnant economy.
Last week he took the opportunity to roll out a list of 908 highway and bridge projects funded by his N.C. Moving Ahead! initiative. The $700 million in Highway Trust Fund money devoted to these projects had already been authorized for transportation, so this isn’t new spending so much as it is accelerated spending (given the snail-like pace of the permitting process and other impediments to the original projects in the 1989 Transportation Improvement Program).
Some days later, Easley divulged that he was going to ask state legislators to refill his cash-incentive kitty to $15 million, up from about $3 million that was in the fund as of a few weeks ago. Administration officials said they needed the funds to close some new economic development deals that were likely to present themselves as the economy began to rebound over the next few months.
I kinda miss the reclusive Easley. I think we’ve had enough of peripatetic politicians who promise, pander, and pester. Plus, I fear that some of Easley’s new promises and panders will cost taxpayers dearly.
The highway spending, by the way, was welcome. Unfortunately, it was accompanied by some additional gas-tax dollars being incinerated at the sacred altar of mass transit. The sacrifice ought to be about as consequential as supplications to Baal. Moreover, it was the result of intransigent environmentalists blocking projects even more desperately needed, and of poor planning by the Department of Transportation. By all means, put our gas-tax money to work for us — but let’s drop all the triumphant talk. And the exclamation point, for Baal’s sake.
On incentives, Easley and his advisors surely know that tossing a few more million dollars of the public’s money around to crafty corporate insiders isn’t a real strategy for economic development. It assumes that governors and governments know which businesses will succeed and which will fail, because it is impossible by definition to give cash grants to every potential industrial relocation and expansion in the state. This is the “fatal conceit” that F.A. Hayek and other economists have explained at great length. It assumes an ability to acquire information that is beyond the capacity of human beings. It assumes an efficacy to central planning. It assumes a lot.
The Easley administration is also reportedly working on some other ideas for submission to the General Assembly. One is to expand a tax credit for research and development spending by corporations. This is an effort to do the wrong thing for the right reason. The government should certainly foster a climate congenial to the research-oriented growth companies of the future, but it shouldn’t do so by trying to manipulate inputs into the industrial process, such as favoring R&D over production.
Another proposal may offer a sales-tax exemption for the purchase of building supplies used in constructing new manufacturing facilities. This is an effort to do the right thing for the wrong reason. The exemption would reportedly be offered to those building biotech, aircraft, automobile, drug, or semiconductor plants. Why single out these sectors? What’s wrong with building chemical plants, or shopping malls? Wouldn’t we welcome any development that creates jobs, income growth, and economic opportunities?
The right reason to exempt industrial building supplies from the sales tax is that they aren’t retail goods. They are used to construct facilities that themselves generate taxable goods sold at retail, be they cars or suntan lotion. Thus it is contrary to sound tax policy to apply a sales tax to such purchases, since the retail price of the good shouldn’t include both an explicit sales tax and an implicit one bundled into the price.
The governor should just propose such an exemption for all purchases of inputs by businesses and leave it at that. This tax cut would certainly constitute a strong incentive to build new plants in North Carolina, but it wouldn’t be a special subsidy. It would be tax fairness, correctly defined.
Not exciting enough an image to project, I guess.
Hood is president of the John Locke Foundation and publisher of Carolina Journal.