Tax Credits Pivotal in the Economic Development Race
Keeping NC Businesses Competitive & Economy Strong
The North Carolina Chamber’s mission centers on making sure that North Carolina is the leading place in the world to do business and protecting and enhancing our state’s business climate and quality of life, which includes fostering a thriving state economy. A key part of succeeding in our mission is ensuring we retain broad-ranged economic development tools for the state, including targeted tax credits.
Policymakers in competing states across the nation have long used tax credits, in some form or another, to encourage businesses to locate or stay in their communities. North Carolina cannot afford to give up footing in the economic development race; the price is too high as giving up ground could potentially cost North Carolina jobs.
As 2008 began, economic indicators suggested an increased risk of recession. Action is needed to stimulate the economy to help protect North Carolina against the most severe effects of a national economic downturn. By extending important tax credits during the upcoming legislative session, North Carolina lawmakers can take an important step toward preventing a decline in spending by businesses and consumers that could potentially slow economic growth more than we have seen to date. Extension of these targeted tax credits could potentially boost business investment and job creation in our state.
Our Chamber supports job creation, businesses and the innovation that will keep North Carolina’s economy among the strongest in the nation. By extending the following tax credits currently being considered by the Revenue Laws Study Committee, the NC General Assembly will stave off the potentially negative impact that allowing these credits to expire would have on our state’s business climate. The state legislature’s Revenue Laws Study Committee has tentatively approved extending the following three tax credits, and a final vote by committee members is expected next week. The North Carolina Chamber strongly supports moving forward with the Committee’s recommendations to extend the tax credits.
R&D Investment Dollars Spur Innovation
Technological innovation is driving the modern economy, and state economic development policies should be modernized accordingly. Incentives for research and innovation, such as extending the current Research and Development (R&D) tax credit, are an important and farsighted step in the right direction.
Because companies seldom retain all of the benefits of their research, particularly riskier and early-stage research, economists find that companies systematically under-invest in R&D. Research shows that the R&D tax credit has been a cost-effective policy tool. For example, the former Congressional Office of Technology Assessment concluded: “For every dollar lost in tax revenue, the R&D tax credit produces a dollar increase in reported R&D spending, on the margin.”
Strong R&D funding is a cornerstone of scientific advancement and innovation and one of the primary reasons why North Carolina is a leader in technological advancement. The R&D tax credit helps fuel economic growth, augments private investment and allows businesses to plan long-term projects knowing that the tax credit is available. R&D activities typically span five to 10 years. Therefore a strengthened and extended R&D credit is necessary to guarantee that the credit will be available during the life of important R&D projects.
Currently over half of all US states have some form of the R&D tax credit and policymakers in these states regard them as a key element in promoting high-quality job growth and productivity growth. Extension of this credit is absolutely imperative for future domestic innovation and economic growth for North Carolina.
Mitigate the Healthcare Crisis for Small Businesses
For small business owners, the balance of providing health care to employees and remaining competitive and profitable has become a serious challenge. The decision of whether or not to insure employees can make or break a small business. According to a recent health insurance report, health insurance for employees can cost eight to 10 percent of the entire payroll. Therefore, it is necessary to consider all of the various healthcare options available that could affect a company’s overall success and help it to offer healthcare benefits to its employees. Just as each employee has individual needs; the same is true for employers.
With the advocacy efforts of the Chamber, the General Assembly enacted a tax credit for small businesses effective in 2007 for those who provide health benefits to all of their full-time employees. Given the fact that this relatively new tax credit’s success has not yet been able to be measured or evaluated, it is important that the General Assembly extend the credit to at least be able to accurately determine its value and effectiveness.
The advantages of the tax credit are two-fold: it levels the playing field for small businesses to be able to afford employee health benefits such as those provided by larger companies, and it potentially reduces the number of working North Carolinians without health insurance. The credit could also serve to encourage entrepreneurs to open shop in North Carolina, knowing that they will have help with health benefit costs. It is a cost savings that helps them to be more competitive in attracting good employees who might otherwise go to a larger company that provides health benefits.
Again, anything that policymakers are able to do to help small businesses in our state deal with the ever-increasing cost of health care should be done. This is a credit already on the books that should be extended.
Preserving North Carolina’s Ports:
Gateway to Economic Growth
North Carolina is home to several major port cities, including the two state-owned port terminals in Wilmington and Morehead City. Dozens of private industries and marine-related services share our water streams with the North Carolina Ports Authority. Shippers using the North Carolina ports can find service to all parts of the world; realize significant savings on in-land transportation costs, and benefit from the cost-efficient operations at the state ports.
In 1992 the General Assembly enacted the State Ports Tax Credit to encourage exporters to use these state-owned ports, and this credit is currently available to taxpayers who load or unload cargo at these terminals.
Our state’s ports exist to provide economic opportunities to the North Carolina residents and businesses. Economic development related to ports activities creates an important revenue source to the state. Lawmakers should value the businesses using our ports system, encourage increased use and help ensure continued investment in North Carolina versus South Carolina, Virginia and other competitor states by extending the current State Ports tax credit.