Special Giveaways Cost Taxpayers
Corporate Welfare Questioned in North Carolina
by Greg LeRoy
Traditionally, the Tarheel State had practiced a philosophy that said "treat all companies pretty much the same. Keep taxes low and regulation simple, and the state's natural advantages will bring economic growth." That approach worked; the state enjoyed high growth and low unemployment. But pressure to enact big giveaways mounted after NC lost some high-profile competitions like the 1993 Mercedes deal.
So in enacting the 1996 William S. Lee Act, North Carolina opened the door to extremely expensive, company-specific deals. Some of the early deals were eye openers: $161 million for a 300-job Nucor mini-mill (that's more than $536,000 per job), and $55 million for a 125-worker Dupont factory (or $440,000 per job).
Now comes a report from the state's Revenue Department which concludes that the law's benefits are not at all clear. Indeed, the report suggests it may actually be subsidizing projects in the state's least-needy counties the most.
The findings confirm two reports issued last year by the North Carolina Budget and Tax Center that found many problems, including the fact that two thirds of the law's tax breaks were going to the state's most affluent counties: http://www.ncjustice.org/btc/010803report.pdf and http://www.ncjustice.org/btc/010603report.pdf
The new report also says that the law favors capital so much that job creation benefits are unclear, and that the costs are so great, the net ripple effects are also unclear. Finally, the report finds what so many other researchers have found: "there is little evidence to date that the tax incentives provided under the Lee Act are large enough in magnitude to affect decision-making by the firms in question." In other words, even such lavish packages as these are not clearly achieving the desired results. It's a potent caution to other cities and states.
And according to a recent AP report:
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For the fourth straight year, lawmakers are set to expand the [corporate welfare] legislation,
adding companies that build large distribution warehouses in poorer counties
and creating a sales tax break on electricity for companies that use
electric currents in the manufacturing process.
State Senator John Kerr, D-Wayne, said businesses do look at incentives when deciding where to bring a new plant. "It takes those [welfare handouts] to close the deal," he said.
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Greg LeRoy runs Good Jobs First - www.goodjobsfirst.org
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