Editor’s note: In order to further expand the ongoing dialog about the recruitment of major economic development projects being dangled by Amazon and Google before leaders in North Carolina and the bidding war such projects create, WRAL TechWire reached out to The John Locke Foundation to explain that group’s stance about offering tax incentives.  Jon Sanders (@jonpsanders) is director of regulatory studies at the John Locke Foundation.

Jon Sanders

RALEIGH – Growth is good. People in the Triangle know. They already enjoy benefits of economic growth: rising incomes, more industry, more diversity, more consumer choices (restaurants, retailers, breweries, unique and boutique enterprises), more amenities (arts, sports), the heady rush of a vibrant community.

But like all things, growth has costs. Growing pains include more traffic congestion, rising home prices, the need for more schools, and so forth. Fortunately, growth also means more tax revenues through new businesses and new residents (corporate income taxes, personal income taxes, property taxes, local sales taxes, utility excise taxes, inspection permit fees, motor vehicle taxes, etc.).

On net, then, growth is beneficial. How would that equation change if newcomers are subsidized?

The Triangle is in play for two major corporate expansion projects: a second Amazon headquarters (“HQ2”) and a new Apple campus. Amazon’s HQ2 would reportedly bring 50,000 jobs and $5 billion in investment. Apple’s expansion could result in 10,000 new jobs.

Either would be a high-profile get; they’re highly visible projects. The Triangle’s business profile has been raised just by making the final cuts. Landing both would be unimaginable.

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The Triangle has a great deal that’s attractive to high-tech projects such as Amazon and Apple. The area features a highly educated, diverse, and international workforce. It is punctuated with three major research institutions alongside several private colleges, HBCUs, and a strong array of community colleges. A regular feature in magazine rankings of “best places,” the Triangle is an ascending region for culture and entertainment, a rising hub for innovative restaurants and parks, the heart of collegiate sports, and also an area blessed with relatively inexpensive cost of living, a lessening overall personal and business tax environment, a mild climate, and proximity to mountains and beaches. There’s little wonder why it is one of the country’s fastest-growing areas.

It’s important that Amazon or Apple choose the Triangle based on these or other business factors. Using government incentives to induce that choice, especially the new “transformative project” enhancement to the state’s Job Development Investment Grant program, in concert with local government incentives, poses a significant risk of turning an economic boost into an inefficient wealth transfer, ultimately causing net harm to the economy. The greater the incentives, the more likely the harm.

By definition, a “transformative” project would invest at least $4 billion in the state and create at least 5,000 jobs. It could receive reimbursements for up to 100 percent of employee withholding taxes for 25 years. It would also be eligible for infrastructure funding and other state and local incentives. Obviously, both Amazon and Apple would qualify.

A transformative project really would transform the region. The term suggests the costs of growth. The Triangle has low unemployment, so it’s already at what economists consider full employment. Tens of thousands of new jobs would bid many workers from current positions, with rising labor costs. Thousands upon thousands of new families would seek homes. They would need schools and police and fire protection. They would add to already crowded roads and highways.

John Locke Foundation

Still, growth is good overall. The benefits of a major new corporate taxpayer bringing in thousands upon thousands of new taxpayers and consumers would, assuming responsible stewardship at all levels of government, pay the freight in terms of additional stresses placed on government and infrastructure.

Unless the state reverses the flow — especially for a quarter-century. Then the growing pains, the greater weight of paying for infrastructure needs (schools, roads, housing), would fall on current residents and businesses, plus all other nonincentivized new businesses. (Amazon is said to prefer significant expansion of mass transit, which nevertheless remains an exorbitantly expensive option for which commuters have shown very little interest.)

Economists have warned that the Amazon HQ2 winner might be an overall loser. Several cities have bid over $1 billion. The Newark, N.J., bid is reportedly at $7 billion as Montgomery County, Maryland, promises $8.5 billion. Apple hasn’t chosen a public bidding war, but the same principle holds. The more that special government treatment influences the decision, the more likely it will distort the economy and cause net harm.

The Triangle has much to offer high-tech giants like Amazon and Apple. The Triangle has much to offer untold numbers and kinds of industries. There’s no need to overpay for the big get and wind up with buyer’s remorse.