Capital Goods - February 2010

Tax hike hasn’t sacked recruiting
By Scott Mooneyham

As 2009 came to a close, Gov. Beverly Perdue made sure North Carolinians knew presents were on the way just in time for Christmas. Governors like taking credit for recruiting jobs, and in this economy Perdue wasn’t going to miss a chance to crow a little. There was plenty to caw-caw about.

In the span of a few days, the governor’s office announced that four companies planned major moves to or expansions in North Carolina, plans that promised to create more than 2,000 jobs. Charlotte got the biggest package: New York-based Zenta Mortgage Services LLC said it would expand operations to create 1,002 jobs, while Swedish appliance maker AB Electrolux announced it was consolidating corporate offices from around the country into a North American headquarters that would employ at least 738. Perdue came to the Queen City to make the Electrolux announcement. “This is a big day. … This is a big company,” she said. IEM Inc., a security and emergency management consultant based in Baton Rouge, La., announced it was moving to Durham County and eventually creating 430 jobs. Waltham, Mass.-based lab-equipment manufacturer Thermo Fisher Scientific Inc. pledged to add 104 jobs in Asheville.

Those companies’ decisions don’t seem to be falling in line with the dire forecasts after Perdue and her fellow Democrats in the General Assembly pushed through a $1 billion tax hike last summer to plug a gaping hole in the budget. “The Democratic addiction to more spending and higher taxes is a surefire strategy for more job losses and delayed recovery,” predicted Phil Berger, the Republican leader in the state Senate.

Should such statements be dismissed as partisan rhetoric? Or did the companies that decided to leave such states as Georgia and Louisiana not get that memo? Will they turn into anomalies as we move further into 2010? To some extent, they already are. Each received state incentives. For Electrolux, the state grants and tax breaks eventually could add up to $25 million. Compared with most companies out there, which haven’t benefited from such state largess, their effective tax rates become lower. Maybe the perks more than made up for any disincentive created by rising sales and personal-income taxes.

But other states surely dangled their own bag of goodies in front of Electrolux and IEM, even if the contents may not have been so sweet. For reasons more compelling than any incentives, Electrolux decided to move its headquarters from Augusta, Ga., and IEM chose to leave Baton Rouge. Statements from the CEOs of both companies offered hints as to why. IEM’s Madhu Beriwal mentioned the Raleigh-Durham area’s highly educated workforce. Electrolux Major Appliances North America’s Kevin Scott cited Charlotte as a transportation hub.

Schools and infrastructure cost money, and state legislators’ biggest job is balancing the need to pay for them against the economic harm caused by high taxes. Republicans like Berger say the Democrats who control the levers of political power in North Carolina haven’t done a particularly good job juggling them. One of the biggest state tax hikes ever during the worst economic downturn since the Great Depression has fed those complaints. But obviously, executives at Electrolux, IEM and Zenta didn’t feel that way. Perdue and legislative Democrats can point to those successes to show that they haven’t pushed too far on the tax front.

Rankings from the Washington, D.C.-based Tax Foundation do put North Carolina behind its Southeastern neighbors. Its latest listing ranks the state 39th when it comes to business-friendly tax climates, a calculation that considers five separate taxes. IEM’s current home state, Louisiana, at 35th, is next worst in the Southeast. But peeling back the data, North Carolina’s tax picture doesn’t look so different from that of its neighbors. Georgia and Virginia, for example, have higher combined per capita state and local tax burdens. Most Southeastern states have a combined per capita state and local tax burden of between 8% and 10% of income. North Carolina also is one of just 13 states nationwide that levies no state tax on property. Local property taxes collected in 2006, the last year for which data is available, put the state 13th-lowest nationally.

Obviously, you can take from these statistics what you wish. Economists generally agree that tax rates, tax policies and even basic governance can put states at competitive disadvantages. But inadequate roads and lousy universities can do the same. What’s not so clear — and what the political posturing in Raleigh will continue to be about — is where North Carolina is on the continuum.

Scott Mooneyham is the editor of The Insider,