Poor State Fiscal Policy: North Carolina Passes Tax Breaks to Attract Apple

June 3, 2009

Tax Foundation Chides State Legislature for Avoiding Real Tax Reform Tar Heel State Needs

Washington, DC, June 3, 2009 – On Monday, June 1, the North Carolina legislature voted to change the state’s tax law to include a narrowly tailored corporate tax break worth $46 million over the next decade to induce Apple, Inc. to build data warehouses in the Tar Heel State. The following is a statement from Scott Hodge, president of the Tax Foundation, reacting to passage of this legislation:

“North Carolina ranks 37th in the nation when it comes to the ‘business-friendliness’ of their tax code in the Tax Foundation’s State Business Tax Climate Index, a measure of how each state’s tax laws affect economic performance. They rank last in the region, behind West Virginia, Virginia, Kentucky, Tennessee, South Carolina and Georgia. And lawmakers need to understand that their state is not only competing with other states for economic investment; they’re also competing in a global marketplace.

“The targeted tax incentives passed by the North Carolina legislature earlier this week might have the good intention of attempting to bring investment and economic growth to the Tar Heel State. But these packages send unintended signals to the marketplace. First, it tells the market that your tax system is so out of line that you need specific tax breaks to get a business to locate in the state. Second, it tells your local businesses that they are foolish for staying in the state and paying taxes to subsidize another business with better political connections.

“Too many legislators confuse targeted business incentives with policies that truly create a better business climate. They are not. They only provide an excuse for lawmakers to avoid real tax reform. Targeted incentives are to a state’s economy what steroids are to the human body—short-term results that eventually weaken the bones, cause heart failure, or worse, impotency.

“Tax systems should not be used to pick winners and losers or micromanage the economy. Data farms in North Carolina might be a good thing, but it is much better for the marketplace to decide that, not government. The key to a prosperous economy is a tax system that provides a level playing field for all businesses and all industries.”

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

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To schedule an interview, please contact Matt Moon, the Tax Foundation’s Manager of Media Relations, at (202) 464-5102.


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