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Just what we need: Another corporate giveaway

Okay, let’s see if we have this straight.

Yesterday’s big news at the state Legislative Building was that the state budget hole is now a gargantuan $4.7 billion for the coming year. April revenue numbers were down by a mind-blowing 40%.

So, what do the Governor and state Senate propose on the same day? Why, a big new corporate tax break that would throw a bunch of state money at a single, giant, multinational corporation, of course! (Apple Computers is the apparent target.)

That would be the same state Senate that just a couple of weeks ago unveiled a comprehensive tax reform plan that was devoted to closing tax loopholes so that all taxpayers would pay their fair share.

Now, before the link on that proposal is dry (or even fully spelled out) the Senate is backing up the state’s half-empty pick-up truck to dump gobs of cash on Apple in order to lure the company to western North Carolina.

In keeping with the mixed messages theme, the Senate sponsor, David Hoyle said the plan would only cost the state something like $1.5 million. But if that’s the case, why go to the trouble of springing the bill on everyone with little or no warning and no official fiscal note?

More to the point, if that’s all it will cost us, how in the heck could that make any real difference to a giant like Apple that probably spends more than that on Steve Jobs’ jeans?  Hell, if that’s all it will take, let’s just give ‘em the money out of the budget.

In reality, of course, this proposal is almost sure to be only the tip of a giant iceberg of giveaways a la the lavish gift baskets presented to Google and Dell a while back.

As for the substance of the proposal itself — which would cut the corporate income taxes for “capital intensive corporations” — it’s fairly complex. But make no mistake, it’s a giveaway that undermines long-established rules on how these calculations are supposed to be handled for multi-state corporations.

To read an exhaustive explanation, check out this report on the subject by one of the nation’s leading experts, Michael Mazerov of the Center on Budget and Policy Priorities.

4 Comments

  1. Rob Schofield

    May 7, 2009 at 10:16 am

    Ironically, the offical bill explantion handed out yesterday at the G.A. includes this in describing the state’s current corporate tax structure (which already favors big corporations):

    “North Carolina shifted to a double-weighted sales factor apportionment formula in 1988 at the request of RJR Nabisco.

    RJR Nabisco had plans for a large automated bakery in the Garner area. After the change was adopted, RJR Nabisco was bought out and forced to cut back on capital expenditures. The compnay never built the plant.”

    Wonder what bill analysts will be writing in 2030 if this idea actually becomes law.

  2. Steve Jackson

    May 7, 2009 at 11:13 am

    Mazerov’s report is quite damning in its rejection of arguments that changing corporate taxation in the way proposed by Senator Hoyle will produce any job creation. Instead, it is a huge tax cut to companies already here, one that can be collected even as companies lay people off (as happened in MA a few years back).

    A better approach to attract companies, if you have to go there, is to use direct employment subsidies. Of course, and as most business executives fully know, no company worth its weight makes a location decision based on the tax code since the state can give and the state can taketh away, not to mention what the state next door can do. Rather, it bases decisions on longer term factors – education of the workforce, proximity to markets, and the health of the transportation infrastructure.

  3. Steve Jackson

    May 7, 2009 at 11:29 am

    And just to explain a little what Hoyle’s bill does:

    State’s must use some kind of formula to tax corporations who operate in several states including the home state (i.e NC) and sell goods or services in several states. The condundrum is: how much do we tax a company that makes 100 000 units here but sells only 1000 in state, the rest sold elsewhere?

    Combined reporting is one obvious method to stop companies moving profits from one state to another in a cynical tax minimization strategy. The other is the use of apportion formulas. These formulas are used to arrive at a number on which the tax is assessed. They have been based on three factors: property value, payroll and in-state sales.

    You can see how a company that has a high payroll or property value would benefit from a shift in the formula to one that leans on the in-state sales figure. If I am a company that makes a lot of widgets here but doesn’t sell a lot here, then being taxed on the basis of in-state sales represents a massive tax cut.

    This is what the bill does, but only for property (ie capital) -intensive companies.

    The problem is, what happens if other states suddenly decide, “Why don’t I do that, too?” As happened in Illinois a few years back, you may end up getting the perverse result that companies that lobbied for the move to a sales-based formula in a nearby state (i.e in Michigan) turn around and say, “Next door state, don’t do that. It is unfair!”

    The real inequity is what is does for state services.

    Apparently the Governor is pushing for this bill. She needs to read the considerable literature on the topic that concludes that this is one tax strategy that does not work in producing employment growth.

  4. gregflynn

    May 7, 2009 at 3:28 pm

    But it is “Money for Jobs” – Steve Jobs that is.