The incentive North Carolinians really want

by Becki Gray, John Locke Foundation and NC SPIN panelist, February 20, 2015.

The role of government is to provide a fair playing field for commerce with low taxes, reasonable regulations, and a strong infrastructure. It is not the role of government to pick favorites, giving advantages to some at the expense of others. A system built on favoritism stifles economic growth, discourages investments and creativity, and interferes with a free market.

Since 1996, North Carolina has been playing the incentives game — under the guise of “economic development.” Sometimes successful at luring companies to North Carolina, sometimes not, but always to the disadvantage of the taxpayer. North Carolina’s homegrown and invested companies are the biggest losers. Their hard-earned tax money goes to lure out-of-state entities. Sometimes their competitors get advantages that they don’t, while they watch their tax bills get bigger.

Today North Carolina has more than 40 different tax and incentive giveaway programs — totaling millions of dollars. The film industry alone soaked up over $140 million in just three years. A scathing audit in 2013 revealed numerous reporting and accountability problems in the state’s Job Development Investment Grant program. No one verified that new jobs were indeed eligible for the rewards they were receiving. A new report from a left-of-center policy group claims more than half of JDIG recipients have failed to meet their promises of job creation, investment, or wages.

How long have we heard, “We have to do it because everyone else does”? North Carolina has been a follower, and not a very good one. There are constant pleas for more money because of the last big fish that got away. Most recently, Mercedes decided to locate its U.S. headquarters in Georgia, which has precipitated the latest round of desperate calls from the governor and some legislators for refunding JDIG. But there will always be the one we didn’t hook, whether it was because of the incentive or not, and demands for “just a bit more” will continue. There will never be enough. Where will it end?

Lawmakers can end it now. They have an opportunity to make North Carolina the national leader, the model for economic development, a haven for entrepreneurs, investors, and job creators. They can build a dynamic, strong, growing, sustainable economy. Actually, we’re well on our way.

Due to reforms in the last few years, we have lower tax rates and rank No. 16 in the Tax Foundation’s Business Tax Climate rankings. We have more reasonable regulations, more individualized choices for students to improve their skills and attain their goals, and low unemployment. We saw 99,000 jobs created just last year, and we’re making wise investments in infrastructure. Our economic recovery is stronger and faster than the national average and in neighboring states.

All the pieces are in place for recovery, growth, and long-term economic prosperity. Why bet taxpayers’ money on the success of some small set of politically trendy industries? We don’t need gimmicks. We need leadership to continue strong economic policies that are working and will continue to make North Carolina strong and prosperous. The best path is the one we’re on.

If abandoning incentives entirely proves difficult, there are some measures to make them less detrimental to North Carolina’s recovering economy.

1. Make them transparent. And accountable. A thorough cost/benefit analysis should determine who gets what and why, and what’s expected.

2. Put a sunset on every program. Revisit, re-evaluate, restructure, and eliminate as needs change.

3. Consolidate. There are more than 40 (yes, 40!) separate economic incentives offered: special treatment for everything from biodiesel producers to investments in recycling facilities to renewable energy. Research tells us the more taxing options available, the higher the taxes. Collapse programs, consolidate grants, and eliminate duplication. No more carve-outs for one company or one industry. We should have one program, and the test should be: What’s the payback on investment for taxpayers? Have one fund. Combining programs may result in sticker shock for taxpayers. All the better. If people knew the real cost of incentives, they’d demand change.

4. Remove barriers for private investors. Crowd funding is a better way to incentivize investments in North Carolina businesses than compelling all taxpayers to bet on favorites picked by the government. Remove barriers and restrictions for individuals to invest their money in North Carolina’s economy the way they want to. House Bill 63 offers a good starting point.

5. Invest in affordable and accessible energy. Eliminate renewable energy subsidies and energy source requirements. Allow natural gas and oil exploration. Energy costs impact every element of business growth and investment. Make it affordable. In recent years, North Carolina’s manufacturing sector has been decimated. Reliable, low-cost energy will help revive that part of the economy.

6. Take care of your own. As of 2007, there were 821,189 small businesses in North Carolina. With low taxes, fewer regulations, investment opportunities, strong infrastructure, and assurance of economic growth, imagine that half of these businesses will create one new job next year. That would be 410,000 new jobs. North Carolina businesses can create jobs right now. To put it in perspective, with North Carolina’s recovering economy we were a national leader in job creation with 99,000 new jobs last year. Now the General Assembly should work to create an environment to explode that number.

What is the real incentive for North Carolina’s economy? Unleash the possibilities, promulgate the opportunities, and allow North Carolinians the freedom to do what they do best: invest, innovate, invent, and inspire, to grow and prosper. To again be First in Freedom — that’s the incentive North Carolinians are looking for.

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