The misleadingly narrow definition of competitive
Thursday, December 27th, 2007
By Chris Fitzsimon
For your reading enjoyment during the holidays, we are republishing some of the best Fitzsimon File commentaries written earlier this year. This commentary was orginally published on Monday, March 12th, 2007
The high-powered group of lawmakers, business leaders, and conservative economists that make up the State and Local Fiscal Modernization Commission is hard at work on reforming the state tax code that everyone agrees is out of date.
The Commission is divided into four subcommittees looking at individual issues surrounding the state and local tax structure. Monday afternoon the subcommittees gave their reports. The recommendations from the Income Tax Modernization Subcommittee report sounded disturbingly familiar, both in terms of specific proposals and the rhetoric used to justify them.
The proposals include lowering the state corporate income tax rate and reducing the income tax rates on the state’s wealthiest taxpayers to 6 percent. The highest tax bracket for individuals is now 8 percent and is scheduled to fall to 7.75 percent unless lawmakers intervene. Governor Mike Easley’s budget recommends that the rate stay at 8 percent.
The subcommittee has other recommendations too, like eliminating some of the poorest taxpayers from the rolls, but the call to cut taxes on corporations and the wealthy makes you wonder if the subcommittee members are confused about the term modernization. It does not mean giving tax cuts to people who don’t need them.
The justification is that current tax rates make North Carolina uncompetitive with other states in attracting businesses, especially states in the Southeast. This is a claim that pops up every year whether there a high-powered commission involved or not and the evidence shows that it is simply not true.
Specific tax rates like the income tax charged corporations may be higher than some Southern states, but overall the state’s corporate tax structure is not out of line with our neighbors and lower than many states across the country.
Pick virtually any measurement of how North Carolina does in the battle to attract new jobs and you’ll find that the state either leads the nation or is close to the top. The last issue of Site Selection Magazine says North Carolina is the top state in the Southeast in attracting new industrial plants and ranks third in the nation in business growth. Sounds pretty competitive.
The best evidence of the state’s tax competitiveness might be its growth. People flocking to North Carolina don’t seem too concerned about its marginal tax rates.
That doesn’t mean that policymakers should not be concerned about competitiveness. They just need to expand their definition of it. Businesses base their decisions on where to locate on many factors other than taxes, like an educated workforce, a sound educational system from K-12 to community colleges and universities, and a good quality of life for their employees.
North Carolina’s competitiveness problems don’t come from the corporate tax structure. They come from the fact the state ranks 44th in the nation in the percentage of people over 25 who do not have a high school diploma and a third of our current high school students aren’t graduating.
The state is 38th the percentage of children who live in poverty and 41st in median household income. Poverty is a strong predictor of struggles in school and students who struggle in school are not likely to be ready for high-tech jobs.
All is not lost with the Fiscal Modernization Commission. Far from it. It has a long way to go in its efforts to update and reform the state’s tax code and there were also proposals made Monday about broadening the state sales tax base to include more services, which would help create a more progressive tax system tied to the growth in the state’s economy.
But it would help if commission members would also broaden their definition of competitive and realize that it isn’t all about a couple of specific tax rates. The state’s well-being and competitiveness must be measured by a lot more than that.
Last 5 posts in Fitzsimon File
- Big money and absurd claims in Clay County - August 28th, 2008
- The short and telling special interest session - August 27th, 2008
- New numbers about struggling families - August 26th, 2008
- The top of the influence list - August 25th, 2008
- The Follies - August 22nd, 2008
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