Despite continued fiscal woes that have forced states to cut billions of dollars in spending on education, health care, transportation, and public safety, North Carolina and Missouri became the latest states to pass expensive tax breaks in the hopes of luring, or retaining, business. 

Unfortunately, there is no evidence that these unaffordable tax breaks will lead to economic recovery and job creation.  The University of North Carolina’s Center for Competitive Economies recently surveyed companies to determine the importance and effectiveness of economic development incentives on their location decisions. Availability of a skilled workforce, quality infrastructure, and presence of community colleges and universities ranked much higher than special tax breaks (13th on the list).  Time and time again, research has shown that the most effective growth strategy for states is investing in education and public infrastructure, not special tax breaks for corporations.

During the final hours of North Carolina’s legislative session last week, state lawmakers passed a pair of bills that extended, expanded and created new incentives for specified industries and companies at a cost of more than $275 million over the next 5 years.  The most costly change was an expansion of the state’s refundable film production tax credit which raised the maximum amount of the credit that can be taken from $7.5 million to $20 million.  New credits were created for video game developers and businesses who locate in eco-friendly industrial parks.  Lawmakers also extended a tax credit program known as Article 3J that legislative staff and University of North Carolina researchers have found to be ineffective at job creation, and as recently as this spring they recommended it should be eliminated altogether.
 
The second bill was developed with specific corporations in mind (although they were not named in the legislation and have still not been publicly disclosed). Commerce officials say these corporations are considering North Carolina as a finalist for their new facilities and incentives were needed to “clinch the deal”.  The legislation grants special sales tax exemptions on electricity and machinery to two data centers, a turbine manufacturing facility, and a paper mill.  Recent news reports suggest such “struggling” corporations as Microsoft (working under the code name “Project Deacon”) and Fidelity are likely to be the parties to benefit from the special rules for the new data centers. 

Proponents of the tax breaks suggested they were needed for North Carolina to remain competitive and to spur economic recovery and job creation.  Yet, no industry listed in the second package will be required to meet a targeted employment level.  

Earlier this week in a special session called by Governor Nixon, Missouri lawmakers passed a $150 million incentives package for Ford Motor Company and its suppliers.  Without the incentives, lawmakers claimed Ford would close its assembly plant in Claycomo and 4,000 jobs would be lost.  But, there’s no guarantee that Ford will stay even with the special treatment and attention it received from Missouri lawmakers.  The special tax break was paid for by cutting pensions for newly hired state employees.

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