This video is pretty good at explaining tax competition — i.e. the idea that governments, in order to keep the geese who lay the golden eggs – must keep their taxes low enough to prevent flight. So how does this apply to North Carolina?
We charge close to the highest taxes (in both corporate and personal income) in the Southeastern U.S. So in order to attract and keep businesses, we’ve turned to economic incentives. But this can’t last forever. Indeed, state governments (and politicians) eager to shower constituents with goodies – a means of keeping power and keeping people dependent (not to mention companies flush with cash) – must keep raising taxes. Right now, N.C. is still competitive with other U.S. states who’ve gone off the deep end. But soon we’ll end up like Michigan, whose population and businesses are leaving en masse.
In order to restore the benefits of tax competition (to everyone) and remain competitive, N.C. will have to change its tax policy. While those on the far left will winge about companies paying their "fair share" (whatever that means), and good ole boys will lose some of the means by which they’re keeping power, the choice is stark: compete or die.
-Max Borders
Michigan is a great example of how government picking and choosing winners and losers in the economy can backfire. Their attempt to implement a sales tax on services was a prime example. As noted in the article you linked to, the tax was basically applied to those industries with the fewest lobbyists. In the end, the service tax was killed.
http://www.freep.com/apps/pbcs.dll/article?AID=/20071201/NEWS05/712010367/1007/NEWS05
This situation rings eerily similar to where NC’s economy is quickly heading. Those with the best lobbyists, (i.e. Goodyear, Bruton Smith) get the breaks, everyone else picks up the tab.
Here’s an idea: end the countless special tax credits and exemptions, deductions, incentives and simply apply one low tax rate evenly across all businesses (including those that file under the personal income tax – which is a majority of NC businesses). That way, companies succeed based on who can best meet the needs of consumers, not who can hire the most lobbyists. Entrepreneurs will spend more time innovating ways to satisfy the needs of their fellow citizens rather than how to exploit the tax code.
Brian, don’t forget New Jersey in there! See this story from WCBS. A recent poll shows that 49% of people in New Jersey want to leave. They cite taxes, government corruption, congestion, and high housing costs as reasons why.
And yet, our North Carolina Legislature seems that it is bound and determined to raise taxes, add to housing costs, and fail to build needed roads. And don’t get me started on the corruption issues in this state.
Apparently, we want to become the New Jersey (or Michigan) of the South.
Not all of us want that, though. I sure don’t. North Carolina deserves better.