Editor’s note: Brian Balfour is Senior Vice President of Research at The John Locke Foundation which is based in Raleigh. This blog was written at the request of WRAL TechWire which seeks to provide balanced coverage of economic development issues.
RALEIGH – The announcement last week that silicon carbide semiconductor manufacturer Wolfspeed received an economic incentives deal worth up to $1 billion for their manufacturing plant in Chatham County was the latest in a string of major economic incentive announcements over the past several months.
Late last year, Toyota secured a deal worth up to $664 million, while airplane manufacturer Boom Supersonic was awarded a package up to $130 million and Vietnamese electric vehicle maker VinFast received a handout potentially totaling $1.2 billion in total incentives. The deals typically involve a combination of state and local government handouts in exchange for a promised level of investment and job creation.
While the announcement of investment and job creation is typically worthy of celebration, its not so much the case when corporate welfare handouts such as these are involved.
Big government and big business in bed together represents the politicization of our economy. Productive resources like land, factories, machinery, and labor are scarce, and most efficiently utilized when they are in response to consumer desires.
But these government incentive deals represent productive resources being directed by the political class, not the people. Making matters worse, the largest handouts are to companies or projects that wouldn’t exist without government mandates to begin with. Toyota, VinFast, and Wolfspeed will all dedicate their resources to the electric vehicle industry, an industry propped up almost exclusively by government subsidies and mandates.
For instance, Gov. Roy Cooper earlier this year issued an executive order that, among other things, stated a goal of increasing the number of electric vehicles (EV) registered in the state to 1.25 million by 2030, along with a goal of 50% of all new car sales in the state being EVs by 2030.
The reason EVs need to be mandated is because people are simply uninterested in buying them voluntarily. The mandate would require an impossibly stunning 4,000% increase in registered EVs in North Carolina is just 8 years; as there are currently only about 12,500. EVs represented just 3% of car sales in the state, so reaching 50% by 2030 seems absurd.
What we’re witnessing is the government attempting to forcibly override consumer preferences via mandates and taxpayer handouts. It smacks of central planning, which has resulted in widespread poverty wherever its been tried on a large scale. And this is a bi-partisan problem, as Democrats and Republicans alike broadly support these corporate incentive plans.
Just the four deals mentioned above would total nearly $3 billion in incentives if fully paid out. Promised jobs combine to roughly 15,500; which works out to more than $193,000 per promised job. Historically, however, such deals have a very poor track record of living up to their promises. Research published in 2020 by WRAL found that for economic incentives deals from 2009 to 2016, about 37% failed to create a single job and only just over half of the promised jobs materialized.
And of course there’s the blatant unfairness of politicians granting massive taxpayer handouts and targeted tax exemptions to favored corporations, while the majority of businesses are forced to pay their full tax bill year after year.
Instead of getting into bidding wars with other states for projects with a poor track record of creating the promised number of jobs, North Carolina should make the state more hospitable for all businesses. One big step in that direction is the phasing out of the state’s corporate tax rate, which is scheduled to fall to zero in 2030. Corporate handouts should also cease by 2030. What better “economic incentive” deal is needed beyond a zero tax rate?
Lawmakers should also consider eliminating the state’s franchise tax and lowering taxes on small businesses that currently pay taxes according to the personal income tax rate.
Businesses should compete with each other based on how well they satisfy consumer desires, not on who’s lobbyists extract the biggest taxpayer handouts. Eliminating economic incentives programs will go a long way toward creating a more level playing field.