BILL LEE'S BROKEN PROMISES

Seven years after the passage of the Bill Lee Act, one thing is clear: the rich get richer and the poor get promises. 

A recent study done by UNC for the N.C. Department of Commerce shows that corporate welfare is alive and well, and worse than we thought. The William S. Lee Tax Act was passed in 1996 with the intent to create "widely shared prosperity" throughout the state, accomplished through tax incentives and credits to compete with other states for new and expanding businesses and jobs. Unfortunately, The Bill Lee Act can be "credited" for wasting millions of public dollars.

The report states that 96% of the new jobs supported by the Lee Act would have been created anyway, without the incentives. According to the Department of Revenue, a handful of five or six corporations account for approximately one third of the credits claimed, and furthermore, another twenty corporations account for another third. In effect, 30 businesses consume a colossal two-thirds of the tax credits. 

Tax credits can be claimed by businesses which are organized into tiers; tier 1 being distressed areas, and tier 5 the most affluent areas. To this date, tiers 4 & 5 have received over 70% of the credits, where tiers 1 & 2 have collected a pathetic 8%. Businesses in suffering areas are generally less productive, so they have a smaller tax credit to reclaim. So, the door is open to the 30 or so more profitable businesses in tiers 4 & 5 to claim them. In other words, corporations in the most well-to-do parts of the state claim most of the tax credits, which calls into question the act's ability to create economic opportunity in impoverished areas.

This near failure of an act manifests the many problems with tax incentives embraced by the state. These credits discretely hide in the tax code, hence they receive less scrutiny than on-budget expenditures. Consequently, taxpayers might view their elimination as the always-frowned-upon tax increase. Most importantly, the incentive programs divert the attention of policy makers away from government's real responsibilities, and cost the state treasury hundreds of million of dollars.

Incentives and interstate competition work in tandem. Often we hear that North Carolina bettered another state, which sounds appealing, but in reality any success fueled by incentives reflects on other states in a negative way. Why would one wish poverty or a higher tax burden for friends and relatives in different states?

These incentives are evidence of corporate welfare's anti-productivity. It is one of the worst facets of the bankrupt philosophy that the government should hand out cash to huge corporations and assume they will act in the public's best interest. Until something is done, we will see wasted public dollars subsidizing development that would occur anyway, and intensifying the economic war between states. States would be much better off competing on their fundamentals, the things that provide for a better future, instead of falling prey to simplistic solutions. 

Legislators should consider this recent UNC report and reinvest in things that we know work, like education, so businesses can hire an educated work force and better administrators.