Recently, the North Carolina Supreme Court declined to hear a case that challenged the constitutionality of the state tax incentives and subsidies provided to Dell Computers, Inc. in 2004. The plaintiffs in the case claimed that the package of goodies given to Dell when it decided to locate an assembly plant in Winston-Salem did not serve a legitimate “public purpose.”
This is the latest in a series of state court rulings that have upheld the legality of business incentives. Of course, just because an activity is legal does not mean it’s a good idea.
The debate outside of the courtroom about whether or not business incentives are smart public investments is not going away anytime soon. While there are compelling arguments on both sides of this issue, some of the campaign rhetoric employed by supporters of these programs is grossly misleading. Many politicians currently running for re-election or seeking higher office are using their support of incentives while in office as evidence that they have “created thousands of jobs.”
To be sure, lots of things that government does can help the private economy to grow jobs – education, roads, and perhaps even business incentives. But “subsidizing” an activity is not the same thing as “creating” it.
First, most of the jobs that the state has subsidized have already been planned by the business but were not necessarily going to be located within our state’s borders. If these jobs are merely placed here rather than in another state then the state subsidy did not “create” them. At most, the subsidy influenced the decision as to where to locate these jobs. This is why, from a national perspective, business subsidies are irresponsible – because it’s a zero sum game. When North Carolina “wins” another state loses.
Second, claims that subsidies “create jobs” always leave out a very important factor – the cost of these initiatives. The two programs most often cited – the “Job Development Investment Grant” program and the “One North Carolina Fund” – both provide cash grants to businesses (as opposed to tax credits) that add jobs to their payrolls. According to state officials, these two programs have “created” more than 50,000 jobs in this decade. The state is paying more than $100 million to the companies that are adding these jobs to their payrolls. Paying a business to encourage them to engage in a certain activity, in this case to add jobs, is not the same thing as “creating” those jobs.
Rather than claiming “I created jobs,” an accurate campaign slogan for state business subsides would read “I provided subsidies to companies to add jobs to their North Carolina payrolls that I doubt would have been put here were it not for this taxpayer-funded subsidy.” It is obvious that voters won’t be hearing that more accurate slogan any time soon.
In many ways, crafting campaign slogans is like crafting personal resumes. It’s about stretching the truth about one’s accomplishments as far as possible without crossing some legal or ethical bounds. For that reason, most campaign slogans are tolerated (and even admired) for their “punch.” But, this year, on the issue of business incentives, some claims have clearly gone too far.
Elaine Mejia is the Director of the N.C. Budget and Tax Center
