Before completing its short session the North Carolina General Assembly approved a new group of business incentives. These incentives are used to attract new businesses by reducing their tax payments to the state. How can the state afford this kind of program? N.C. Cooperative Extension economist Mike Walden lends his perspective:
“Because … what the state does is they believe — they estimate based on the advisors they have — that actually having these business incentives will in the long run make more money for the state. I think people have a misconception about how business incentives work. Let’s say if company A is coming to North Carolina, and the state says, ‘Well, we are going to offer you $10 million worth of business incentives,’ most people think that means someone writes a check immediately for $10 million and gives it to that company. That’s not what happens in most cases. In most cases what happens is that $10 million is what the business is not going to pay in the future. It is going to be a reduction in state taxes. They are still going to pay state taxes they just aren’t going to pay as much as they might have.
“And the state actually goes through a calculation that says, ‘Alright, if this company comes and even with them bringing, even with them having the $10 million reduction in their taxes, are we still going to benefit? Because if they didn’t come they wouldn’t create any of these jobs and they wouldn’t pay any taxes at all.’
“And so really … the crux of the issue regarding business incentives is, Are they needed to get a business to come at all? And of course we never really know the answer to that question.”Category: Economic Perspective