<< Back 8/14/02 Easley’s stimulus act perverts capitalism By Dr. Roy Cordato Gov. Mike Easley’s N.C. Stimulus and Job Creation Act is nothing more than socialism customized for capitalists. At the core of Easley’s proposal is a perverse plan to use taxes paid by companies’ workers to reward company owners for locating in North Carolina. Subsidies to the businesses would be based on the amount of taxes withheld from employees’ paychecks, up to 80 percent. For every dollar that companies withheld from workers’ paychecks the businesses would, in effect, be allowed to keep 80 cents and send in only 20 cents to the state. The employees would give up a part of their salaries, not to the state in taxes, but to their companies for the privilege of working there. Decisions of which companies would get to bilk taxpayers would go to an Economic Investment Committee, comprised of three political appointees — the secretaries of commerce and revenue and the budget director. The most onerous part of the legislation is the arbitrary power granted to the EIC. All three members would have strong ties to the same political party. Given a choice between subsidizing companies of equal qualifications, where one has a history of making contributions to the “right” political party while the other doesn’t, is there any question of who would get the subsidy? The EIC is likely to devolve into a slush fund management team for the party in power. The legislation would push the door wide open for the buying and selling of political favors. Making this more likely is the fact that the criterion that is supposed to guide the EIC’s decision making is subjective and arbitrary. The legislation states that the project should create a net increase in employment and strengthen the state’s economy. In addition, it mandates that the total benefits of the project to the state should outweigh its costs. Any test of these conditions would be arbitrary and easily manipulated. It would be impossible for the EIC to gather the real-world information needed to determine whether the conditions would be met. That is because the process is one of robbing Peter to pay Paul. In order to attract the businesses that the EIC divined are the “right” ones, other businesses and workers would have to be punished. Every dollar that would go to a favored business would have to come out of someone else’s pocket. Investment, consumption, and job creation in other areas of the state would be reduced, and there would be no way for the EIC to know how much those reductions would be or where they would occur. Furthermore, the EIC would have to know how many present and future jobs would be eliminated or never come about because of the losses and what the ripple effects of lost retail and other business would be. None of this would be measurable. Because there would be no firm foundation for making the necessary calculations, it would become easy to manipulate the data to show the desired result. If the committee were predisposed to subsidizing a company, then the books could easily be cooked to justify its decision. There would be no way to prove them wrong. There does exist, however, one proven way to attract investment, maximize job growth, and improve the economy. Unfortunately for the people of North Carolina, this governor and legislature have shown no interest in pursuing it. It involves one simple principle — keep control of income and wealth in the hands of those who earn it. This means the state government should get out of the way. Taxes on businesses, consumers, and workers should be lowered, not raised. Regulations should be reduced, not expanded. And all government subsidies to business should be abolished. This approach is unappealing to politicians who bask in the glory of spending other people’s money. The free enterprise system affords no opportunities for governors and legislators to take credit for the opening of a new factory or the creation of new jobs. Without the ability to rob Peter to pay Paul the job of politician would become quite mundane. Ultimately, the governor’s plan is based on the same fallacy that has doomed other socialist schemes throughout history — namely that a team of government bureaucrats can allocate resources more efficiently than can private investors, consumers, employees, and entrepreneurs. No evidence exists to support this proposition. It is the height of arrogance for the governor to think that his team of experts will be the one exception in all of economic history. Dr. Roy Cordato is vice president for research and resident scholar at the John Locke Foundation in Raleigh.