New Report Shows How Unequal NC's Tax Code is Structured

The N&O’s Under the Dome provides a quick overview of a report produced by the state legislature’s Fiscal Research Division detailing the state’s “economic development inventory.” The report actually catalogs the estimated amount of tax dollars not collected due to special tax rates granted to certain activities, targeted tax credit programs, General Fund expenditures on “economic development” inititatives like regional economic development commissions and state grant programs (i.e. corporate welfare handouts).

North Carolina spent more than $1.3 billion on economic development last year, according to a recently released annual report from the General Assembly’s Fiscal Research Division.

The vast majority of that spending — more than 92 percent — came in the form of tax expenditures, including tax exemptions for goods, services and equipment.

Sales tax exemptions accounted for nearly $700 million, with the bulk of those exemptions going to sales to farmers ($244 million), purchases of mill machinery ($178 million) and packaging costs for manufacturers and retailers ($120 million).

Economic development grants accounted for $37 million, with the state’s Commerce Department allocating $31.4 million of that.

Commerce allocated $15.4 million towards Jobs Development and Investment Grants and $10 million to the One North Carolina Fund.

As noted, the largest item in the “inventory” is the Orwellian-named “tax expenditures” – which is government-speak for tax exemptions or rates lower than the normal tax rate (for instance, farmers purchasing certain business inputs don’t pay sales tax on those purchases, factories purchasing mill machinery pay only 1% sales tax rather than the standard 6.75% rate.)

Ideally, all business input purchases would be exempt from sales tax, in order to avoid the problem of “tax pyramiding.”

If nothing else, this report from Fiscal Research shows how incredibly unequal North Carolina’s taxes are applied, with countless different rates and exemptions poking holes in the tax code. An important part of any tax reform effort must move toward a more simple and evenly applied tax code. You can read the full Fiscal Research study here.

New Report Shows How Unequal NC’s Tax Code is Structured

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