Opinion: Daily Journal

Some Damage Control on Incentives

RALEIGH – It was damage control at the North Carolina General Assembly on Wednesday, in case all the smiling faces at a Senate Finance Committee meeting suggested a different vibe.

Said damage had been inflicted on state and local government officials by recent revelations concerning the enormous incentive package Google will receive as it locates a new server farm in economically distressed Caldwell County. The estimated $260 million cost over 30 years seems exorbitant given the relatively small number of jobs involved, 210, and the fact that many if not most are likely to be filled by newcomers rather than longtime residents. There appears to have been no economic-impact study to speak of, and both the state and local components of the package were put together without the remotest possibility of public involvement.

In short, Google made many public officials in North Carolina look like yahoos. Now they needed to defend themselves, and chose the Senate Finance meeting as their opportunity.

My guess is that the effort failed. Here are the main arguments the apologists advanced for their big-business largesse, and why the arguments fell short:

The Google deal doesn’t really cost the taxpayers anything, because the incentives are in the form of foregone taxes that, in the absence of the investment, wouldn’t be collected, anyway.

Nice try, but no. Only the most simplistic public-finance analysis would recognize this defense as valid. It assumes that corporate taxpayers are simply cash cows to be milked, and that in the Google case state and local governments are simply volunteering not to visit the dairy barn. In reality, property and sales taxes levied on a major industrial facility are a means by which governments collect revenue from real human beings to pay for services to those human beings. Workers bear some of the incidence of such taxes, as do customers, vendors, and shareholders.

It costs money to deliver services such as road access, public safety, and education for the children of employees, vendors, and other individuals associated with the project. Some of the costs are defrayed by taxes personally paid by these individuals, such as property taxes on their home or sales taxes when they shop. But under normal conditions, the remainder of the costs gets picked up with taxes on establishments. Only in the Google case, that won’t happen. Other taxpayers, personal and corporate, will have to pick up the slack. That’s the cost, and it’s very real.

North Carolina has no alternative but to play the incentives game, if it wants to be an attractive place to do business and create jobs.

This is an empirical matter, and the data don’t support the proposition. The extent of a state’s incentive policies does not appear to correlate with measures of state economic growth such as per-capita income or job creation. The available evidence suggests that other factors, including quality public services and the overall tax burden, do play at least a modest role in influencing state economic competitiveness. What incentives may do is 1) help land a particular corporate relocation, though even here there are lots of claims that don’t bear up to close examination, and 2) reward particular individuals, such as consultants getting commission checks and politicians getting photo ops.

North Carolina’s political class is fooling itself if it believes that average North Carolinians feel the same sense of resignation they do about incentives. Many small business owners are angry. Many local taxpayers are angry. A chummy committee meeting at the legislature won’t turn those frowns upside down.

Hood is president of the John Locke Foundation.