In states across the country, economic development policies are headlined by flashy government programs offering subsidies of some form or another to businesses. “Corporate welfare,” as it’s known, can take the form of anything from special tax treatment, to even direct cash injections from taxpayers to shareholders.

In North Carolina, some notable examples include the Job Development Investment Grant (JDIG), a nuanced tax-value kickback scheme. The program is attached to the big splash announcements, the economic development “wins,” like Apple, VinFast, or WolfSpeed. Warm and fuzzy policies like Renewable Energy Portfolio Standards (REPS), forcing solar intermittency and costs on to North Carolinians; and NCInnovation, using taxpayer money to select and award grants, also constitute corporate welfare.

Lawmakers and policy influencers chose this course, ostensibly, because they believe they can steer the state’s economy through the deployment of incentive packages, subsidies, tax rebates, grants, and the like. Yet, the data, which lawmakers are routinely presented with, show no hard evidence of benefits for the states or people where corporate welfare is leveraged.

Despite all the pomp and circumstance of ribbon cuttings and jobs announcements, the only thing backing up politicians’ campaign claims of “jobs saved or created” seems to be hubris.

When pressed on the question of corporate welfare, why we must bribe companies with our taxpayers’ money, a common retort is something to the effect of, “Everyone else is doing it; we lose out to other states if we don’t play the game!”

Of course, there’s a relevant saying to apply here, about bridges and dares among friends, but what if a good number of those other states also pledged to avoid the bridge to central planning that is corporate welfare?

Multilateral Disarmament

The “everyone else is doing it” argument loses some of its sway if, in fact, not everyone is doing it. Moreover, a critical mass of states pledging to resist these wasteful policies could actually flip the script.

In 2019, the Mackinac Center for Public Policy and the 1889 Institute published, “Multilateral Disarmament: A State Compact to End Corporate Welfare,” in which authors propose “an interstate compact between states that could finally create momentum toward good forms of tax competition and away from the subsidy-heavy ones.”

Granted, politicians don’t exactly salivate at the prospect of unilaterally ending ribbon-cutting programs. It’s often much easier for politicians to abuse taxpayer capital than to sacrifice political capital with an idealist position.

Last month, I had the opportunity to meet one of the paper’s authors, James Hohman of the Mackinac Center, at the State Policy Network (SPN) Annual Meeting in Phoenix. We discussed North Carolina’s ranking — the Tar Heel State comes in at No. 39 in a measure of corporate welfare dollars compared to gross state product; below the national average — and their drive to turn the collective action problem on its head.

“If a group of states decided to simultaneously disarm […],” reads the report, “then as long as all could make a credible commitment not to renege on the deal, everyone would be better off.”

First, just because our state isn’t quite as addicted to corporate welfare as others doesn’t mean North Carolinians’ tax dollars spent on corporate welfare schemes are any less wasted. It also doesn’t mean our politicians and policymakers are any less susceptible to more and more. The good news, perhaps, is that we aren’t so far gone as to fear strong withdrawals; especially if we have company.

“Interstate compacts [contracts between states that are allowed under the constitution] could reboot healthy competition between states and codify a discontinuation of corporate welfare subsidies, especially those intended to further one state’s economic interests over another’s,” the authors wrote. “To encourage states to join the compact, it must contain within it a provision prohibiting compacting states from competing with each other through corporate welfare schemes. However, compacting states could still compete in this way with states that have not entered the compact.”

Could such a compact gain enough momentum to become politically viable? There may not be a better one to take that first step toward economic freedom than the Old North State. But it will take a hardy kind of leadership.

individual leaders to spur collective action

Forgoing corporate welfare doesn’t mean politicians won’t get to cut ribbons. To the contrary, cutting taxes for all businesses and individuals, leaving them with more of their own money; cutting through regulatory rats’ nests to allow small-business owners and large industry to both thrive; and, making energy policy that prioritizes reliability and affordability over green fantasies, leads to a lot more ribbon cuttings in the end.

Just take a look at how North Carolina has performed since lawmakers rooted policy very close to those low-tax, limited-government principles. The policy environment over the last decade has made our state a leader in economic and population growth. It’s great to be in North Carolina!

The policy successes, however, have tended to tempt politicians with that which poisons free market success. Just a little bit of corporate welfare — “Just a little bit because we’re doing so well!” — as a means to maintain that political high, disrespects our taxpayers while putting the conservative foundation of our success at risk.

Political caucuses in the state legislature are unlikely to spearhead a call for such an interstate compact. After all, it doesn’t provide the same political red meat of a Convention of States resolution, for instance.

Instead, it will take bold individual leadership, particularly from gubernatorial candidates aiming to distinguish their campaigns on policy, to enliven a march toward multilateral disarmament. Likewise, candidates from the local to the statewide level who are interested in making North Carolina the freest, most prosperous state in the Union would do well to examine bold solutions like this compact.

It’s a problem most politicians aren’t brave enough to even admit exists: that each tax dollar of yours they take and spend on corporate welfare schemes is a dollar wasted, purely in the name of political optics.