EDITORIAL: Eliminating corporate income tax gives businesses a free ride

It has been the goal of the North Carolina General Assembly since 2013 to reduce corporate income taxes in our state. That’s the year the new Republican majority passed legislation dropping our state’s 6.9 percent corporate income tax down to 6 percent, with triggers in place for further reductions that would eventually bring it down to 5 percent.

In 2019, Gov. Cooper vetoed a budget that dropped corporate income tax rates down to 2.5 percent; that veto was overridden by the NCGA. The 2021 budget called for even more reductions beginning in 2025 — the lowest rate in the nation among states that levy corporate income tax — with a 5-year plan to bring that rate to… nothing! Zero percent! No dollars at all from profits made by corporations registered in NC by 2030. [Thanks to the NC Budget & Tax Center for their useful timeline.]

The people don’t like it: 69 percent of North Carolinians disapprove of the elimination of corporate income taxes. And the businesses didn’t ask for it — Boom Supersonic, Toyota and other huge corporations that recently came to NC seemed to be fine with the current rate. A pair of bills making their way through the House and Senate suggest freezing the rate at 2.5 percent and repealing the phaseout, but there’s little chance it would ever come out of committee.

We have a problem with it on principle.

The fact is that corporations are creatures of the state — you can’t do business in NC without registering with the secretary of state and the department of revenue. In return, the state allows C-corporations LLCs and S corps a degree of protection between the company’s owners and business liabilities like lawsuits or bankruptcy. It’s actually the whole point of a corporation.

Should this privileged status come at no cost?

Consider, too, that corporations take a huge toll on resources: There are at least as many trucks on our highways as there are passenger cars. Manufacturing creates waste that cities must figure out how to dispose of. Even newspapers use public space for distribution and public services to recycle old issues. Corporations could not exist without the state, nor could they function without the infrastructure it provides.

All that for free?

And then there’s the problem of math. Our state is expensive to run — our budget is $28.25 billion dollars this year. Who’s going to pay for that?

We are.

Just as the legislature has been reducing corporate income tax, they have been cutting personal income tax rates to place less of the burden on our wealthiest residents. Just as nefarious, the GA has been underfunding things that don’t apply to the wealthiest North Carolinians, like public schools and clean water to create a sleight-of-hand “surplus” which is the main selling point of the zero tax rate.

So what happens when no one pays taxes? That $28.25 billion will get covered by large increases in sales tax, property tax, fuel tax and any other taxes or fees they can eke out of regular consumers and homeowners. The people would be paying for the corporations, which is a little bit like splitting a restaurant bill with someone who got the lobster while you got the salad.