How serious are our state leaders about economic growth and long-term recovery? Are they committed to broadening the base of taxpayers so that everyone pays something and nearly everyone pays less? Will they stand strong to continue the reforms that are turning the state around?
Tax reform began in 2011 when the sales tax rate was reduced by a full penny. This was followed in 2013 with flattening and reducing the personal income tax rate for every taxpayer in North Carolina and reducing the corporate income tax to attract and maintain business investments.
In addition, dozens of carve-outs and special exemptions have been eliminated. Tax reform has been serious business for three years now. Hundreds of academic studies over the past 25 years show that a lower tax burden helps lead to economic growth.
And it seems to be working. North Carolina’s unemployment rate is no longer one of the highest in the country, but is now lower than the national rate for three months running. Economic forecasts indicate all sectors of our economy are improving; everything from consumer confidence to housing construction is on the rise. Over 200,000 net new jobs have been created in North Carolina since 2011.
Things are clearly moving in the right direction, tough decisions are paying off, and there’s a growing momentum in economic recovery and long-term growth. State leaders need to continue to address the hodgepodge of special tax breaks for politically favored groups at the expense of all other taxpayers. Now is not the time to backslide.
Take the film incentive. Please. North Carolina offers cash payouts to the film industry on 25 percent of what they spend. They’re called tax credits, but in most cases the N.C. Department of Revenue cuts filmmakers a check for doing business in North Carolina. The film credit will expire at the end of the year.
Over a quarter of U.S. states do not give any tax breaks to the film industry. Those with incentive programs are doing the math and are repealing or rejecting giveaways to the film industry.
Hollywood movie moguls cashed in $86 million worth of credits in 2013 here in North Carolina. (To put things in perspective, $108 million would cover the teacher pay raise the governor has proposed. Film tycoons or teachers? Hmmm.) In 2012, the film industry got $62.3 million and over $30 million in 2011.
The return on that “investment”? Only 19 cents for every dollar given away in tax credits to the film industry. Jobs? A 2011 report by the General Assembly’s staff says only 55 to 70 jobs were created that year and had the money been used instead for an across-the-board tax cut, five times that number of jobs would have been created. The federal Bureau of Labor Statistics reports 792 film-related jobs in North Carolina in 2012.
North Carolina started its film giveaway program in 2005, expanding it in 2009. In 2010, Gov. Bev Perdue signed into law an exemption for film companies from paying the 6.9 percent corporate tax on their “earnings” to ensure they got the full 25 percent refund. New conservative legislative leaders set the film credit to sunset on Jan. 1, 2015.
The film industry has launched a full-out attack to hold on to the credits. They paid for a (now thoroughly debunked) report touting the economic benefits of the giveaway. “Compromises” include a nonrefundable credit, something tied to capital investments and covering only real films.
And they are going after local incentives as well. One proposal would authorize local governments to exempt film companies from paying local occupancy taxes. This is the worst of special treatment for special interests.
During the short session, if the General Assembly does nothing, the North Carolina film credit goes away — it simply fades to black. All taxpayers would benefit, and our state leaders have the opportunity to show that they are serious about tax reform, about economic growth, and about keeping promises.
Other tax credits due to expire on Jan 1, 2015, cover rehabilitation of historic buildings and old mills. In 2011 alone almost $10 million in credits were given out for rehabilitating historical structures. If we are going to even out our tax system, this is exactly the kind of special treatment that needs to be eliminated. It’s not that historical renovation or repurposing mills is a bad thing; it’s just not something all other taxpayers should pay for. All of these tax credits should sunset on Jan. 1, 2015, as planned and promised.
As this short session’s legislative work gets underway, will North Carolina leaders keep the economic recovery momentum going? Are they committed to tax reform that is working: elimination of carve-outs, fairness and consistency, lower rates and a broader base, economic recovery, and long-term growth? Bold leaders have made tough decisions. North Carolina is on the right track. We can’t afford to backtrack. Let’s get serious.
Becki Gray (@beckigray) is Vice President for Outreach at the John Locke Foundation.