Good news on taxes
Published October 6, 2014
By John Hood
by John Hood, John Locke Foundation and NC SPIN panelist, October 6, 2014.
Except when complaining that North Carolina isn’t giving enough targeted tax incentives to Hollywood studios, solar-panel manufacturers, and commercial real-estate developers, liberals contend that cutting taxes on business has no effect on business starts, corporate relocation, or job creation.
They are mistaken. Fortunately for North Carolina’s economy, lawmakers are properly ignoring their mistaken views.
Until this year, our state’s corporate income tax rate was 6.9 percent. When added to the federal tax rate, which works out to 32.8 percent when adjusted for deductibility by the Organization for Economic Cooperation and Development (OECD), that put North Carolina at a serious disadvantage compared to locations in Europe (where combined corporate rates average 26 percent) and Asia (28 percent). Admittedly, corporations don’t typically pay the published tax rate, due to various exclusions and exemptions. But this happens around the world, not just in the U.S. When two University of Calgary researchers adjusted for actual collections from direct and indirect corporate taxes, they found that America still had the highest effective tax rates.
Tax rates are far from the only consideration in business decisions. Otherwise all corporations would relocate to Ireland (with a rate of 12.5 percent) or Slovenia (17 percent). Still, it is the height of folly to assume that we can afford to ignore the corporate tax burden when it is lower in every other industrialized country, often by 10 percentage points or more, as well as in many American states.
In addition to common sense, we have a large collection of empirical literature to go on. Since 1990, academic journals have published at least 82 studies of state corporate or business taxes. In two-thirds of them, higher tax burdens were associated with weaker economic performance on such measures as job creation and wage growth.
That’s why Gov. Pat McCrory and the legislature decided to act. In the tax-reform plan enacted last year, North Carolina’s corporate tax rate fell to 6 percent in 2014. If state revenue targets are met, it will continue to fall by a point a year through 2017, when at 3 percent it will be half the national average rate and significantly below that of our neighbors.
Internationally, North Carolina is on a path to having a combined marginal rate of 35.8 percent, lower than Japan’s 37 percent and within a few points of France’s 34 percent and Germany’s 30 percent. Unfortunately, state tax relief alone can’t get us down to the tax rates corporations pay in Canada (26 percent), the Netherlands (25 percent), Sweden (22 percent), or Britain (21 percent). Congress and President Obama need to stop posturing and start acting on federal tax reform.
Still, it represents a welcome step in the right direction — and not just for economic growth. To tax corporate income is actually to tax three groups: shareholders, employees, or customers. When corporate taxes hit shareholders, they impose an extra layer of income tax on dividends or capital gains that are already taxed at least once (if investors have their shares in tax-deferred accounts) and often twice (if investors pay personal taxes on both the principal and the returns).
And when corporate taxes hit workers as lower pay or customers as higher prices, they do so in a opaque manner. Workers don’t know that they are receiving lower wages or fewer benefits because of the corporate tax. Customers have even less of a sense that what they pay at the register is related to taxes levied up the supply chain.
Taxes ought to be as transparent as possible, so voters can evaluate whether the government services they receive are worth the price they pay for them. At the state level, I believe that principle argues for relying as much as possible on a flat-rate tax on consumed personal income (savings ought to be exempt to avoid double-taxation) so that taxpayers get an annual accounting of the bulk of what they paid in state taxes.
North Carolina’s corporate tax rate is dropping. That will bring more jobs and higher incomes for North Carolinians, as well as greater transparency in taxation. Good news all around.
October 6, 2014 at 10:31 am
Norm Kelly says:
Does this not clearly show the confused nature of everything lib? Cutting taxes has no effect on ANYTHING until libs decide to play God with their winners & losers lottery. The groups, businesses, individuals that THEY like, prefer, want to encourage SHOULD be treated special. But those businesses, groups, individuals that THEY don't like, that THEY want to penalize, should be treated harshly and be FORCED to support the CHOSEN few that are friends of libs. Does this make sense to ANYONE? I can't imagine that it actually makes sense to lib pols either. But so long as the sheeple continue to allow the libs to play games with OUR money, so long as the sheeple allow libs to LIE to us about how they are playing this game, continue to lie to us about the schemes they implement, the libs will continue to do it. The question isn't WHY libs believe this lie, the biggest question is WHY WE let them continue to get away with it?!
Of course, we also need to take into consideration the response of the current occupant, and those libs in Washington who support him, like our very own K. How does the occupier, like a good lib, want to respond to businesses responding PROPERLY to over taxation here at home? He wants to PENALIZE them more if they decide to take advantage of lower taxes elsewhere! How does penalizing a company MORE encourage them to stay here? Aren't these businesses choosing to relocate BECAUSE THEY ARE ALREADY OVER PENALIZED (taxed for all you libs who don't know what i mean by penalized!)? So how does penalizing them MORE have the desired effect of keeping them from moving? Just another lib scheme that is doomed to failure. (talk about redundancy!)
Just because the corporate tax rate is LOWER does not mean it will have an impact on our economy. Businesses will NOT choose to do business here JUST because our tax rate is lower than our neighbors. Just ask a lib. They will tell you, as John points out, that taxes have NOTHING to do with where anyone does business. But then the libs prove this lie all by themselves, like they prove all their other lies, by saying that 'incentives' encourage businesses to move here. What's an 'incentive'? It's a benefit given specifically to the chosen business, to encourage them to move here. An 'incentive' is a tax break. Exactly what libs say has no effect on business. See, proving their own lie!
Canada and Britain are both socialist countries. You mean to tell us that even in socialist countries they have discovered that high business tax rates have a negative effect on the economy? This can't be. Doesn't this also prove the lib lie about tax rates not having an impact on business? Of course, but libs will NEVER admit this! Just ask Chris.
There is a point of diminishing returns when talking taxes. Of course, everyone knows that every thing in life has a point of diminishing returns. Ronald Reagan proved that federal taxes have an impact on our economy. When they are set at the proper level, the economy grows. When they are set too high, libs have fits that business makes decisions based on how they will be penalized by the government. Libs claim that tax policy has NO EFFECT on anyone's behavior, individual or corporate, but then want to penalize any entity that responds to their tax policy. Just like killing babies, libs want to have it both ways. I know this is for another discussion, but it's a lib fact that compares. When libs kill a baby through abortion, even late term or partial birth, they consider it a good thing, and want to encourage more of it. When a pregnant woman is involved in something like an auto accident, and she is killed or severely injured such that her baby is also killed, then libs believe it is proper to prosecute for the death of the baby. In one instance, where libs encourage the activity, it's just a mass of cells. In the other case, where libs despise certain activity, they consider it a life. But it's the same circumstance, proving the confused nature of libs.
The liberal mind, to paraphrase, is like concrete. All mixed up and permanently set. Which is why they are consistently referred to as 'demons'. They insist that I accept their confused state without question, claiming they know better while proving their confusion. Following demons leads to self-destruction. And is counter-productive, at least.
October 6, 2014 at 11:52 am
Richard Bunce says:
Less money out of the pocket of NC taxpayers and less money in the government bureaucrats hands is always a good thing.
We should also end tax withholding... the government should do it's own dirty work and stop coercing employers into doing it for them.
At the Federal level repeal the 17th Amendment so that the Senate represents the interests of the State and Senators are appointed by the State legislature then when the Congress passes a budget they apportion the Federal government revenue needs to the States to actually collect the revenue as they see fit. Taxpayers only have to deal with one taxing authority this way and the States are protected by their Senators in the Senate from excessive revenue requirements.
