Christensen: Focus on taxes could hurt what makes NC great for business

rchristensen@newsobserver.comJune 29, 2013 

You can just picture all the smart boys and girls at the legislature, the governor’s office and the think tanks poised in front of their lap tops searching through the data to justify their contention that North Carolina’s climate is anti-business.

North Carolina was ranked as having “the top business climate” in the country displacing Texas in 2012, according Site Selection, the magazine of corporate real estate strategy and economic development. DELETE.

North Carolina ranked third best state for business by Chief Executive magazine in 2013 behind Texas and Florida. DELETE.

North Carolina ranked fourth in the country as the best state for business in 2012 behind Utah, Virginia an North Dakota, according to Forbes Magazine. DELETE.

North Carolina ranked fourth best in the country for business in 2012, according to CNBC, following Texas, Utah and Virginia. DELETE.

North Carolina ranked 44th in tax climate for business by the Tax Foundation. PRINT.

Which one of these statistics do you think we have heard over and over again from Republican lawmakers pushing to either deeply cut or eliminate corporate and personal income taxes? Correct. The last one. In fact, Senate leaders were so impressed, they had a Tax Foundation economist come down from Washington to testify before a legislative committee.

Cherry picking statistics to make your case is an old game – used by politicians and Philadelphia lawyers from time immemorial.

The Tax Foundation is a reputable, Washington-based group that has been around since 1937. I have used their material in stories, although liberal groups frequently complain when I do because the foundation has a conservative bent.

The Tax Foundation looks at the question of business friendliness through a narrow lens – taxes.

It has analyzed the House and Senate tax plans and determined that if the House plan passes, North Carolina would be ranked the 19th most business friendly in taxes and if the Senate plan passed North Carolina would be the sixth most business friendly regarding taxes. The two sides are now in negotiations. The N.C. Chamber of Commerce’s heart is going pitter patter.

Tax focus has drawbacks

So what is the Shangri-La that North Carolina is now searching for?

Wyoming, a state with about the same number of people as Raleigh and Cary.

The Tax Foundation considers it the perfect state as far as taxes. Rounding out its top five of the lowest tax states for business are South Dakota Nevada, Alaska, and Florida.

And what are the states North Carolina is trying to avoid? The worst state, according to the Tax Foundation, is New York, followed by New Jersey, California, Vermont and Rhode Island.

Now you may have varying ideas about those states. But few people would argue that Wyoming, South Dakota and Nevada are the nation’s economic engines and that New York, New Jersey and California are the nation’s economic backwaters.

So taxes, while certainly a consideration, are not the only thing that matter to businesses seeking to locate a facility in a particular state.

The studies that placed North Carolina among the most attractive states for business included a number of factors: Cost of doing business, low unionization, regulatory environment, education, quality of life, transportation and access to capital.

Which is why the narrow-gauge focus on taxes has its drawbacks. If you cut taxes too deeply you can affect the other things that make North Carolina an attractive place to live and to work.

The big squeeze

The economic engine for the Triangle has been the university/research complex, much of it publicly funded. That complex has been the cradle for many successful companies such as SAS Institute started by an NCSU professor and Quintiles started by a UNC professor.

But the state funding for the University of North Carolina is being squeezed like a lemon – from $2.7 billion in 2008-2009 to $2.5 billion in Gov. Pat McCrory’s proposed budget. First it was the recession, now it is austerity measures. In one of the fastest growing states in the country, the UNC budget would normally have been expected to grow to $3.7 billion this year, based on the budget growth of previous years.

Big tax cuts would mean the squeezing is just beginning. Which may be why lawmakers are talking about shifting more kids to community colleges.

That North Carolina’s economy has problems is self-evident. The state has the fifth-highest unemployment rate in the country, per capita income has slipped from 29th to 37th in the past 11 years, and the poverty rate has climbed from 12.2 percent to 17.4 percent since 1990.

But few economists argue that North Carolina’s economic torpor has been caused by taxes. They note that North Carolina is a manufacturing-heavy state that is more sensitive to economic swings and that such traditional industries as textiles, tobacco and furniture have been devastated by foreign competition.

There may be a legitimate argument for tinkering with the tax code – making sure corporate taxes are not out of line with neighboring states. But the link between lowering taxes and a booming state economy is weak. (See Nevada with the third-best tax business climate and the nation’s highest unemployment rate.) And if North Carolina lowers its taxes, what is to stop other states from lowering theirs in a race to the bottom. And can any state ever match third world countries in low taxes, low regulation and low wages in a global economy?

So what is the value to having one of the lowest business tax rates, if you jeopardize the state’s quality of life? Those business executives don’t just want to move businesses here, but they want to live here as well.

Christensen: 919-829-4532

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