A bet­ter in­cen­tive? Kill NC’s cor­po­rate in­come tax

The Charlotte Observer (Sunday) - - Opinion - BY DON­ALD BRYSON AND BRIAN BAL­FOUR, SPE­CIAL TO THE OB­SERVER

The re­cent buzz around North Carolina “los­ing out” on big projects from Ama­zon and Ap­ple un­der­scores politi­cians’ strong de­sire to pick win­ners and losers in the econ­omy. Leg­is­la­tors from sev­eral states com­peted over who could lav­ish these cor­po­rate giants with the big­gest hand­outs and tax breaks.

Dol­ing out mil­lions of tax­payer dol­lars and other po­lit­i­cal priv­i­leges cre­ates un­fair ad­van­tages for the few po­lit­i­cally fa­vored cor­po­ra­tions while harm­ing the many North Carolina busi­nesses that have been pay­ing taxes and cre­at­ing jobs for decades.

Such crony re­la­tion­ships put big busi­ness and big gov­ern­ment in bed to­gether and not only cre­ate an un­fair play­ing field, but an en­vi­ron­ment highly con­ducive to po­lit­i­cal cor­rup­tion.

There is a so­lu­tion, how­ever. What if North Carolina could be a na­tional leader in re­ject­ing cor­po­rate crony­ism, while at the same time cre­at­ing more than 43,000 jobs and cre­at­ing the fifth-best busi­ness tax cli­mate in the na­tion?

How? Just elim­i­nate the state’s cor­po­rate in­come tax. What bet­ter cor­po­rate in­cen­tive could there be than zero tax li­a­bil­ity on all cor­po­ra­tions op­er­at­ing in North Carolina?

In a study just re­leased by the Civ­i­tas In­sti­tute, economists con­cluded that elim­i­nat­ing the state cor­po­rate in­come tax would cre­ate 43,000 jobs over the next decade alone and grow av­er­age worker salaries by more than $1,500.

Ac­cord­ing to the Tax Foun­da­tion, elim­i­nat­ing the cor­po­rate in­come tax would im­prove North Carolina’s busi­ness tax cli­mate to fifth best in the na­tion.

And thanks to the eco­nomic growth, in just a short pe­riod, elim­i­nat­ing the cor­po­rate in­come tax would end up in­creas­ing to­tal tax rev­enue to the state.

Grant­ing tax breaks to fa­vored com­pa­nies shows that politi­cians rec­og­nize the im­por­tance of low taxes for job cre­ation and eco­nomic growth. How about a tax break for all cor­po­ra­tions, not just the po­lit­i­cally priv­i­leged few?

Many economists note that the state cor­po­rate in­come tax is the most harm­ful to eco­nomic growth of all state taxes. While cor­po­ra­tions are a fa­vorite whip­ping boy of the po­lit­i­cal Left, the fact is cor­po­ra­tions don’t pay taxes, peo­ple do. The peo­ple bear­ing the cost are share­hold­ers, cus­tomers and em­ploy­ees of those cor­po­ra­tions.

Guess who pri­mar­ily ben­e­fits from the ad­di­tional busi­ness in­vest­ment spurred by the tax cut? Work­ers who are hired to fill the newly cre­ated jobs, and ex­ist­ing work­ers whose wages in­crease be­cause in­vest­ments in cap­i­tal goods make them more pro­duc­tive.

In the end, ben­e­fits of tax cuts to “large cor­po­ra­tions” ac­cu­mu­late mostly to work­ers.

More­over, the cor­po­rate tax gen­er­ates less than three per­cent of state tax rev­enue while be­ing the most volatile source of tax rev­enue.

Cor­po­rate tax elim­i­na­tion would be a sig­nif­i­cant next step to ac­cel­er­ate the pos­i­tive eco­nomic mo­men­tum North Carolina has en­joyed cour­tesy of the Gen­eral As­sem­bly’s tax re­form ef­forts over the last sev­eral years. Such re­forms have im­proved our state’s rank­ing in the Tax Foun­da­tion’s Busi­ness Tax Cli­mate In­dex from 44th to 12th this year.

Let’s put more North Carolini­ans to work and put more money in their pay­checks. And let’s put an end to un­fair crony­ism. Elim­i­nate the state cor­po­rate in­come tax.

Don­ald Bryson is Pres­i­dent and CEO of the Civ­i­tas In­sti­tute, and Brian Bal­four is Ex­ec­u­tive Vice Pres­i­dent. The Civ­i­tas In­sti­tute is a con­ser­va­tive think tank in Raleigh.

DIEDRA LAIRD

In­cen­tives helped per­suade Lend­ingTree to cre­ate more jobs in Char­lotte. Mayor Vi Lyles spoke at the an­nounce­ment last month.

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