Clear up confusion about corporate tax ‘giveaways’
It’s a pretty safe bet that most N.C. voters dislike “corporate giveaways.”
If politicians did a better job distinguishing those “giveaways” from income tax rate cuts that affect all corporations, the state’s economy would likely see substantial benefits.
This commentator has never seen polling data on the phrase “corporate giveaways,” but he suspects that Gov. Roy Cooper’s team has. Those “corporate giveaways” must get low marks from the voters. The Democratic governor has used the words on multiple occasions to decry recent tax rate cuts by the Republican-led General Assembly.
At the same time that Cooper and his ideological allies have decried “giveaways,” they’ve extolled the benefits of targeted tax incentives aimed at particular businesses or industries.
Most of those businesses operate as corporations. State government gives away special tax breaks to the favored corporations while making those same breaks unavailable to others. Combine “corporations” and “giveaways,” and it’s hard to judge those incentives to be anything other than “corporate giveaways.”
And the Cooper administration has not shied away from giveaways. In 2017 “the state struck deals to potentially grant as much as $185 million in incentives to 54 companies,” according to the Raleigh News & Observer. In comparison, the state granted about $67 million in targeted incentives in 2016, the newspaper reported. That was the last year of Republican Pat McCrory’s term as governor.
As the newspaper noted, the apparent contradiction between Cooper’s rhetoric and his administration’s actions has attracted attention from groups like North Carolina’s chapter of Americans for Prosperity. AFP has launched a “Reverse Robin Hood Cooper” campaign to highlight the issue.
“I think he’s misusing terms,” said Donald Bryson, AFP state director, in a recent interview with Carolina Journal Radio. “The problem is that the governor is using when we cut the rate evenly for all corporations — when we treat Bill’s Plumbing the same as we treat Bank of America — with the same corporate tax rate, he says that’s a corporate tax giveaway. However, he’ll go off and give these special incentive deals to specific companies, usually politically connected companies.”
Setting questions about terminology and political connections aside, it’s important to ask whether these special incentives work. It would be hard to answer “yes” based on the N&O report. It quotes both the research director of the “left-leaning” Economic Policy Institute and a University of Texas professor who founded the Economic Development Incentive Evaluation Project. Neither gives incentives high marks.
Meanwhile, the story is different for the broad-based tax rate cuts that Cooper mislabels as “corporate giveaways.” Those rate cuts “consistently yield results,” said Mike Walden, N.C. State University economist.
“There is much literature to support the idea that lowering the state corporate tax rate does have a positive impact on state-level economic growth,” Walden told the newspaper.
Speaking of “economic growth,” it’s important to distinguish between that term and “economic development.” That’s the argument Roy Cordato has been making for years. Senior economist at the John Locke Foundation, Cordato explains why a government focus on economic growth makes much more sense than a focus on economic development.
The pursuit of economic development involves government actors inserting themselves into economic decisions best left to others. “It necessarily entails an effort by the state to pick winners and losers in the marketplace by using tax breaks and direct subsidies to promote specifically targeted businesses and industries,” Cordato said. “This in fact is what ‘crony capitalism’ is all about.”
In recent years, N.C. state government has used economic development policies to promote tourism, films, sports, telecommunications, biotechnologies, health care, and financial services. Businesses outside the government’s target areas have enjoyed none of the same access to special corporate giveaways.
“In reality, economic development is simply a disguised form of state central planning of the economy, and it should be abandoned,” Cordato argues.
Targeting economic growth instead requires a much different set of government actions, Cordato said. “The policy approach is usually very broad, applying to everyone — tax breaks for all, regulatory breaks across the board for bigger companies and smaller companies,” he told Carolina Journal Radio. “Not targeted, but an equal-opportunity approach with respect to entrepreneurs and entrepreneurship.”
Tax and regulatory breaks for all? An equal-opportunity approach? Those sound like messages that would appeal to voters as well as economists. Much more so than “corporate giveaways.”
Mitch Kokai is senior political analyst for the John Locke Foundation.