Corporate Welfare Weekly - July 17, 2009 – Issue 7

 

Breaking News…

Superintendent of Public Instruction, Dr. June Atkinson, wins the right to do her job!

Dr. Atkinson was represented by NCICL attorney’s Robert F. Orr and Jeanette Dornan.

This is a great victory for North Carolina! Please see the NCICL website for press releases.

 

Recent Announcements…

 

$68,500 to Laser Print Plus from the Thomasville City Council and the Davidson County Commissioners. The company plans to create more than 20 jobs for Davidson County.

            ~Journal Staff and Wire Report, Winston-Salem Journal, July 16, 2009

 

$16,000,000 to a Freightliner plant in Cleveland. The project has also been called “Project FMT.”  The incentives will come in the form of a 75% property tax break over 5 years and according to Robert Van Geons, executive director of the EDC, the tax break “would apply only to the increased assessed value, and the company would be penalized should the total on-site employment drop below current levels.” The incentives have not been approved yet, but EDC, the Economic Development Commission of Salisbury-Rowan Counties, will be asking the county for approval at a Rowan County Board of Commissioners meeting on July 20^th. The incentives will come from the Rowan County Investment Grant Program. The grant is expected to be approved.

            ~Jessie Burchette. Salisbury Post, July 8, 2009

 

Job estimates for Apple overstated? The Department of Commerce claimed Apple will create “more than 3000 jobs in the regional economy.” According to records released by Commerce, a $1 billion investment will generate 2,757 jobs statewide. Given that exaggerated figures were used to develop these estimates that number may even be inflated.

            ~Jonathan B. Cox, News & Observer, July 16, 2009

 

Quote of the week…

             

“The statesman who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.”

 

~Adam Smith, the Wealth of Nations, Book IV, Chapter II

 

Encouraging Fact…

 

Governor Perdue signed two Executive Orders on July 8, 2009 in an attempt to bring greater transparency and accountability to state government. One of them specifically pertains to our corporate incentives battle:

 

 “Executive Order 17 directs the Department of Commerce to obtain and report the names of consultants involved in economic development projects that seek benefits from the state’s incentive programs. Information on consulting relationships will be provided to the Secretary of Commerce, the Economic Investment Committee, and the Governor to better assist them in making conflict of interest assessments and will be retained as part of each project’s file.”

 

            ~Press Release, Office of Governor Bev Perdue, July 8, 2009

 

If only this Order was in effect during the recent Apple deal. The shroud of secrecy was so thick; no one knew what was happening until it was all over.

 

Discouraging Fact…

 

Governor Perdue wants to implement a recreation tax for activities such as golf, rafting trips, and amusement park admissions. We all remember when the legislature increased film incentives from 15% to 25% in North Carolina. It doesn’t make sense to decrease the taxes for some, while increasing the taxes for others. Golf is big business in North Carolina and has a $ 5.3 billion annual impact and about 70,000 people are in jobs related to the sport, according to a 2007 study. The golf industry’s effect on the North Carolina economy rivals that of the research & development and agriculture industries. Increasing taxes on recreational activities, especially during a recession, is not rational. Charles T. Ratcliffe, the owner of five Charlotte-area golf courses, laments “if people have to cut their spending, they’re going to cut the discretionary activities like golf.” As people cease to play golf due to the increase in cost, our local golf courses will have to cut staff to survive.

~Kevin Kiley, News & Observer, July 16, 2009

 

So, in effect, we are “creating” jobs by bribing movie makers to come to the state, but we are in turn destroying jobs linked to the golf industry. We are taking money away from a very important local industry and giving it to an industry that will not even provide long-term benefits to the state. Even if the film industry did provide long-term benefits, who are these legislatures to decide who wins and who loses economically? Why should the film industry win at the expense of the local golf industry?

 

For more reasons why this is bad policy, see the Editorial Economic Viewpoint below.

 

Editorial Economic Viewpoint…

By:  Shelley Gonzales

Graduate student in Economics

North Carolina State University

 

Increasing Recreation Taxes Will Kill the Golf Industry in North Carolina

 

Governor Perdue wants to increases taxes for recreational and entertainment activities in North Carolina. For this segment, I would like to focus on the golf industry. Apparently, our Governor does not think this will have a significant impact on the business and that people will continue to play golf at the same rate, otherwise she would not make such a proposal. Again, it appears our legislators are falling short of enforcing their economic policies with economic theory. It is either that they have no knowledge of relevant economic theory or are just simply ignoring it in order to advance their political agenda.

 

As discussed above, the golf industry has an annual impact of $5.3 billion on the state of North Carolina. Our state has hundreds of public, private, and resort courses and even hosted the U.S. Open in 2005. While popular, the services provided by the golf industry are considered “luxury” services. This is because playing golf is not a necessity, but a discretionary activity. According to economic theory, the demand for a luxury good is highly elastic. Elasticity measures the rate of response of quantity demanded due to a change in price. A good or service is labeled highly elastic if a slight change in price leads to a large change in the quantity demanded or supplied. A higher price will deter customers in a highly elastic market because the opportunity cost of purchasing the product will become too high.

 

So with this understanding, if taxes are raised on recreational, discretionary activities, what do you think will happen to the consumer demand for a round of golf? Simply put, if the price is increased even slightly, there will be a sharp drop in the number of golfers. So the tax revenue collected after implementing the tax increase will be less than the tax revenue collected prior to the tax increase because the decrease in business will cancel out any benefit the state would expect to receive. This is why tax increases in any form do not lead to higher tax revenue. It only deters consumer spending in the marketplace. This is also why tax cuts are always a success. Decreasing taxes gives consumers an incentive to spend because not only do they have more money to spend overall, but they feel they are getting more for their money.

 

Economics is the study of markets. An elected leader would be wise not to ignore its principles. That is if they want to be a successful leader.

 

Please visit the North Carolina Institute for Constitutional Law website for more information