Editorial: Importance of taxes overstated

Jul. 14, 2013 @ 06:27 AM

You can find a statistic to say anything you want.

For instance, according to the recent study “Vital Statistics on Congress” by the American Enterprise Institute and Brookings Institution, the most effective president since Lyndon Johnson, as measured by the ability to win votes in Congress, is – put down your coffee so you don’t spit on anyone – Jimmy Carter, by a wide margin over George W. Bush, Richard Nixon and Ronald Reagan.

Jimmy Carter fans, take this statistic and run with it.

John Hood of the conservative John Locke Foundation in Raleigh, in a column that ran in the News-Topic on Friday, similarly has run with a statistic that he contends illustrates that the tidal wave of budget cuts and social legislation coming out of the General Assembly has not had, will not have, cannot have any serious effect on North Carolina’s ability to recruit businesses, as left-leaning critics contend.

"Investors, entrepreneurs and business executives don’t make multi-million-dollar decisions on the basis of Huffington Post screeds and MSNBC tirades," Hood wrote. "They put their money where it is mostly likely to generate the highest, sustained after-tax return."

Hood points as his main piece of evidence to the fact that Virginia, Georgia, Florida and Texas all have more Fortune 500 company headquarters, much lower tax rates, smaller government and lower jobless rates than North Carolina.

But you know what other states have more Fortune 500 companies and lower jobless rates than North Carolina? Start with California (just rated by CNBC as the second-worst state to do business), with 53 Fortune 500 headquarters to Texas’ 52. How about New York, with 50? New Jersey, 21. Barack Obama’s Illinois, 32. All of those have more than Florida (16) and Georgia (15) have. Should we then be more like California or New York?

Virginia has 24, but the great majority of them are in suburban Washington, D.C. It's safe to assume those chose to be near D.C. first, the better to influence regulations and government contracts, then made Virginia and Maryland bid against each other for deals, so that ought to eliminate Virginia as a valid comparison.

And let’s look at Texas’ headquarters. Cross the energy companies off the list and there isn't much left.

N.C. has 14 Fortune 500 companies, only two fewer than Florida, yet Florida has NO PERSONAL INCOME TAX. If taxes were such a huge factor, shouldn't that state's total be closer to New York's? Or bigger?

Hood didn’t mention our neighbors South Carolina (one Fortune 500 headquarters) and Tennessee (nine), but they also have lower tax structures than N.C. Hmm.

Further, the once reliably Republican business lobby in Virginia is increasingly estranged from that state’s Republican legislative delegation because the party’s absolutism on low taxes is standing in the way of doing anything to relieve the paralyzing traffic congestion in northern Virginia and Hampton Roads that makes Charlotte’s rush hour look like a drive in the country.

So what does this all say about how North Carolina’s tax rates affect corporate recruiting? Likely it says that taxes are just one of a great many factors. A high tax rate can be offset by living near beaches and wine country, or in New York City. A low tax rate can be offset by a higher chance of hurricanes, or a state legislative agenda that seems drawn straight from the 1950s. Indeed, Commerce Secretary Sharon Decker said on Monday that she is not hearing from business people that taxes are a primary reason North Carolina has lost out on any recruitment targets.

Hood sort of acknowledges taxes are just part of the picture, but then he goes back to pointing to Texas, Virginia, Florida and Georgia.

Contrary to what Hood would like to think, the people making decisions about where to place corporate offices do pay attention to social legislation, school funding and other factors – because no matter how good a state’s tax structure might be, they do have to recruit people to run the business.

Why did Lowe’s move its corporate headquarters from North Wilkesboro to suburban Charlotte? Taxes had nothing to do with it. Recruiting executives had everything to do with it.

If you are competing for top talent, sometimes those people pay an awful lot of attention to the state’s quality of life, including things affected by the legislature, and they have competing offers from companies based in more socially inviting places.