Bad Bill of the Week: Corporate Welfare is a Bipartisan Problem

Proving yet again that corporate welfare is a bipartisan problem, four Republican legislators last week introduced House Bill 117, NC Competes Act. The primary sponsors of the bill are Reps. Susan Martin (R-Wilson), Charles Jeter (R-Mecklenburg), Jeff Collins (R-Nash) and Bob Steinburg (R-Camden), but to be fair the bill garnered five co-sponsors, three of whom are Democrats.

The NC Competes Act comes on the heels of an omnibus economic incentives bill sponsored by Democrats, which was last week’s Bad Bill of the Week.

HB 117 features several provisions, including:

• Expansion of the Job Development Investment Grant Program (JDIG), a corporate welfare fund that hands taxpayer money to select corporations meeting specific criteria. Currently, the fund’s maximum award amount is capped at $22.5 million; the NC Competes Act would increase this to $45 million. Gov. Pat McCrory has repeatedly pleaded with the legislature to expand this fund. The act would also extend the grant-making authority of this program to Jan. 1, 2020, from the current sunset date of Jan. 1, 2016.
• Direction of $20 million of funds appropriated to the Department of Commerce to be transferred to the Site Infrastructure Development Fund. This fund provides money to localities to make additions or improvement to local infrastructure such as water or sewer facilities with the intent of making the area more accommodating for potential new businesses. This fund was depleted several years ago and never replenished.
• Alteration of the apportionment formula for how the corporate tax bill is calculated on large, capital-intensive businesses. Eligible companies would pay their state corporate tax based only on the amount of sales revenue they collect in-state. This move is viewed as a tax reduction for large, in-state manufacturers who are heavily invested in property and payroll in NC. To be eligible for this formula, a company must invest $1 billion or more in a facility. This bill also removes the requirement that such investments take place in economically distressed counties (designated Tier 1 or 2).
• Extension of the sales tax refund for passenger air carriers. Airlines that pay sales tax on fuel are allowed a refund on any amount paid in excess of $2.5 million. Reports say that American Airlines is the only airline that currently qualifies for this refund. This refund is currently set to expire on Jan. 1, 2016; the proposed bill would extend the refund to 2020.
• Expansion of eligibility for “qualifying datacenters” and “datacenter support equipment” that would enable more tech companies to qualify for generous tax breaks.

The NC Competes Act offers a different menu of subsidies and tax credits, but is motivated by the same mindset behind last week’s omnibus corporate welfare bill. There’s no need to extensively rehash again the arguments against corporate welfare here. Suffice to say that such government meddling in the economy is not only morally objectionable because it uses political power to advantage some businesses over others, but it amounts to poor economics because it obstructs the arrangement of scarce productive resources, with political decisions overriding consumer preferences.

For these reasons, House Bill 117, the NC Competes Act, is this week’s Bad Bill of the Week.