Charles Walsh | NC Civitas

By Charles Walsh | NC Civitas

Under the current system, state legislators can decide what businesses deserve a break from taxes and those which don’t qualify. In this “mother knows best” manner, the government can “protect” North Carolina citizens from “dangerous,” profit-seeking businesses.

A potential problem with widespread tax cuts for businesses is the current state of the budget. The deficit continues to grow and this hardly seems the time to be cutting taxes. However, if the government stymied the amount of money it is spending to “encourage economic development” and never took it from North Carolina businesses in the first place, all businesses – not merely a select few – would have the potential to grow.

If the General Assembly really wanted to encourage statewide economic development in the most efficient manner, they would allow the free market to work. If the government simply cut taxes, all businesses would benefit. It would then be up to the forces of the free market to determine which businesses were fit to remain open and which ones could not compete. Giving a leg up to specific industries, as this bill does, hardly seems fair or effective.

While HB 1973, “Various Economic Incentives,” appears to encourage economic development, it doesn’t appear to be the most effective way of doing so. Although the bill is fairly long, it is very limited in scope. With this measure, legislators have attempted to target very specific industries or locations across the state for tax cuts. Industries mentioned in the bill include, but are not limited to, film production companies, digital media development, and industrial eco-park development. Locations that it targets are “agrarian growth zones”, which are rural areas within a county with more than 20 percent of the population below the poverty level, and “urban progress zones”, which are essentially the same thing as the agrarian growth zones, but in municipalities with a population of 10,000 or more.

The state distributes tax credits for economic development according to a system of tiers. A tier one county would be the one in most dire need of economic improvement. This legislation grants any business that develops in an agrarian growth or urban progress zone a tier one tax cut of 7 percent. Businesses that develop in a tier two or tier three area receive only a five or two percent cut, respectively; and those credits are granted only if property is developed over threshold limits of $1 million for tier two and $3 million for tier three.

This hardly seems to be the best or most straightforward way to stimulate economic growth. Why then would legislators continue to pursue these “economic incentives” bills when there is a clearly more effective alternative?

Furthermore, if the state government continues to handpick which businesses will have an advantage in this state and when and where they will have those returns, North Carolina will consistently fail to maximize its economic potential.

Charles Walsh is an intern at the Civitas Institute (www.nccivitas.org)