On business rankings and taxes

By Scott Mooneyham | Sep 27, 2013


RALEIGH -- During the back-and-forth about this year's tax reform, tax overhaul or tax cut (whatever it really was), one of the rebuttals that Democrats offered Republicans pushing for change was North Carolina's business climate ranking by business publications.

The legislative Republicans promoting a reworking of the state's tax structure argued that it was broken and, being so, had become a major detriment to recruiting new jobs and industry.

They cited the state's high unemployment rate and lower income tax rates in other Southern states.

The argument, which ultimately carried the day, was that lowering income tax rates would improve the state's competitive position.

The Democrats' response: What about the business rankings?

For years, North Carolina had ranked at or near the top when various publications compared states' business environment.

Just recently, Forbes magazine put out another of those lists. For the second straight year, North Carolina ranked fourth, behind Virginia, North Dakota and Utah.

It is easy enough to dismiss the rankings as subjective, but competing parts of the Forbes' methodology almost parallel the tax debate in North Carolina.

According to Forbes, it looks at 37 points of data in six different categories.

The first category, and most heavily weighted, is the cost of business. That includes the cost of labor, energy and taxes.

Conservative pundits promote the notion that studies show state and local tax rates driving economic growth. The reality is that the economic data and studies are a mixed bag.

As I told one of those pundits, logic dictates that any state which chooses to raise its state tax rates to 30 or 40 percent, putting itself way out of balance with other states, would push business away in droves.

But when the differences between North Carolina, Georgia and Florida's state and local tax burdens are less than 1 percent, and taxes represent a small part of the cost of doing business (much less than the cost of labor), the effects of lowering a state's tax rate may not be all that proponents claim.

Labor supply is the next category in the Forbes list, and its importance butts up against the idea of cutting taxes with impunity. Creating an educated workforce that is attractive to industry requires public investment in public schools, community colleges and universities.

The implications of inadequate investment in education are not theoretical.

A few years ago, a major company moved to North Carolina from another Southern state after privately complaining to economic developers that it could not find enough qualified workers in that other state.

The third category is regulatory reform, indicating that legislative Republicans may have done more to promote economic development with three years of regulatory changes than with their tax overhaul.

The other categories in the Forbes rankings are economic climate, prospects for growth and quality of life.

Again, critics might dismiss these rankings as subjective.

I'd suggest that, removed from whims of politics, they are less subjective than most of the rhetoric coming from the floor of any state legislative chambers.



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