How Governor Cooper can put an end to cronyism - if he wants to

Published January 30, 2020

By Brian Balfour

For a guy claiming to be against “tax giveaways” to corporations, Gov. Roy Cooper sure seems to be fond of doling out taxpayer dollars to corporations.

Indeed, in his remarks accompanying his veto of the legislatively approved state budget last summer, Cooper insisted he objected to the budget because it “values corporate  tax breaks over classrooms.” And exemplifying many other comments on the subject is a 2017 tweet from Cooper lamenting that “Tax giveaways to corporations and the wealthiest will punch a hole in our budget.”

Hopefully Cooper owns a pair of boxing gloves, because he’s been doing plenty of that “budget punching” himself.

For instance, in 2019 alone, Cooper brazenly authorized $146 million in taxpayer handouts to corporations, according to John Locke Foundation calculations. The hypocrisy runs deep.

And what do we get in return for these tax-funded corporate handouts?

According to mounting evidence, not much.

Recent reporting by WRAL found that companies receiving such handouts between 2009 and 2016 have “so far reported hiring just over half the jobs announced” under the state’s two largest incentive programs: the Job Development Investment Grant and One North Carolina Fund.

A stunning one-third of the incentivized projects failed to create a single new job.

Furthermore, a new research paper co-authored by Columbia and Princeton University economists released earlier this month concluded that state and local government incentive packages fail to “increase broader economic growth at the state and local level.”

The paper further suggests that, in fact, “the welfare effects of these subsidies might be negative on average,” meaning they might do more economic harm than good.

Making matters worse, these tax giveaways not only don’t boost the economy but create a tremendously unfair economic climate.

Imagine being a competitor of one of the businesses receiving taxpayer handouts. Your competitors are receiving millions in additional revenue not based on selling their product, but because of political privilege.

Companies are forced out of business, and people lose their jobs because they can’t compete against the cronies that get to add taxpayer handouts to their bottom line. How is that fair?

And let us not forget that such arrangements create a political environment ripe for corruption. When politicians signal their willingness to dole out millions of dollars to hand-picked businesses, there’ll be no shortage of businesses lining up with their hands out. Naturally, those companies offering something of value to the politicians – and not always legal gifts – will go to the head of the line.

Unsurprisingly, the Ivy League authors found in their study that corporate incentive spending increased more frequently in years in which a state’s governor is up for re-election.

North Carolina deserves better.

A far better and fair incentive program would be to replace our state’s current web of targeted crony handouts and politically-motivated tax breaks with the elimination of the state’s corporate income tax. Doing so would create the same tax-free environment for all corporations. How’s that for an “incentive?”

At 2.5 percent, North Carolina has the lowest corporate tax rate of any state, among states that impose one. It not only produces a tiny fraction of state revenue but represents the most volatile source of tax revenue as well.

A 2019 academic report co-authored by a High Point University economist and an economic consultant, and released by the Civitas Institute, found that eliminating North Carolina’s corporate income tax would create 43,000 more jobs over ten years. Furthermore, the state could expect overall average salaries to increase by more than $1,500 during that time.

Cooper should ditch the failed and unfair policy of picking winners and losers in the economy with our tax dollars and replace it with an economic incentive that treats all businesses the same.

It’s time to make North Carolina’s economy fair and attractive to all job creators. It’s long past time to eliminate the culture of corruption in Raleigh that comes with cronyism. Repealing the corporate tax will also improve upon North Carolina’s recent economic surge and signal to job creators that the Tar Heel State is open for business.


This article originally appeared in the Greenville Reflector