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The Real Reason For The Chiquita Payola

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You wouldn’t know it to listen to Michael Smith of Center City Partners or to Governor Beverly Perdue, while they were basking in the floodlights of just having bought, not brought, 400 jobs to Charlotte by spending  millions of  dollars, but the real reason we taxpayers are now on the hook for funding the job transfer of the Chiquita Corporation is that Mecklenburg County and North Carolina are among the worst counties and states for business in the country. 

Strange isn’t it how no discussion of the cost of doing business in Mecklenburg County and in North Carolina made the Charlotte Observer’s write up of the deal.  We’ll take a look why in just a few lines. 

The “Broken Window”

But first, we need to understand that at least since the 1800’s, economists have been attempting to tell us the truth about government spending…that it doesn’t create any jobs…because every dollar that any level of government spends must first be taxed or borrowed out of the private sector…out of your and my pockets.  And hence the government and not we the people get  to spend the fruits of our labor.  The great French libertarian and economist Frederic Bastiat poignantly brought this phenomenon and truth to light in his discussion of the “broken window”  which details that “what is seen” and “what is unseen” must be taken into account to fully understand the totality of a transaction. 

In the case of Chiquita, we must not only consider what is seen, the proclaiming of the Governor and Mr. Smith that they have secured 400 jobs for Charlotte, but we must also consider what is unseen, the taking of $20 million dollars from taxpayers with which to buy Chiquita’s relocation.  What would we taxpayers have done with that $20 million?  We would have invested it in new plant and equipment…we would have saved it thereby giving banks more to lend…we would have made the decision on spending those funds, not government. 

Yes, we taypayers lost  the “opportunity cost” to spend the dollars, but perhaps more importantly, government revealed to us that they have too much of our money…in this case $20 million too much…if they can afford to redistribute these funds to a private corporation, and not affect the basic services for which we rely on government.

The State Business Tax Climate Index(SBTCI)

And now, back to the real reason we had to make the Chiquita deal…the high cost of government in Mecklenburg County and in North Carolina.  The Tax Foundation recently released their annual report entitled “2011 State Business Tax Climate Index” by Kail M. Padgitt.  Read the report at The Tax Foundation’s web site at www.taxfoundation.org.  The report, which has been published for years, is a compilation of 5 component indexes:

  • The Corporate Tax Index
  • The Individual Income Tax Index
  • The Sales Tax Index
  • The Unemployment Tax Index
  • The Property Tax Index

These indexes(and the sub-indexes and variables contained within)  are weighted to various degrees to provide a ranking that provides a picture of the relative “business friendliness” of the governmental policies imposed on business by the legislatures therein.

The report includes what may be profound statements to some in government about the effect of taxation on job creation and on tax policy between states:

“…state lawmakers must be aware of how their state’s business climates match up to their immediate neighbors and to other states within their regions.”

“Lawmakers create these deals under the banner of job creation and economic development, but the truth is that if a state needs to offer such packages, it is most likely covering for a woeful business tax climate.”

“Most importantly, taxes diminish profits.”

North Carolina’s Rank in the 2011 Report

In the 2011 SBCTI, North Carolina ranks an abysmal 41st out of 50 states in the Union…we have as our company in the bottom 10, states out of which businesses are fleeing, like New York, California, New Jersey, and Connecticut, to more business friendly climates.  North Carolina ranks poorly in the Corporate Tax Index Rank(25th), in the Individual Income Tax Index Rank(36th), in the Sales Tax Index Rank(44th), and in the Property Tax Index Rank(33rd).  City, county, and state leaders who negotiated the deal with Chiquita, had virtually no favorable tax climate data with which to impress Chiquita management.  What could they say?  “We hope to move out of the bottom ten states to a more favorable position due to the Republican take over of our state legislature in the mid-terms?”  No, even that is in doubt with the current GOP leadership.

Charlotte And Mecklenburg’s Tax Burden

And how does Charlotte and Mecklenburg county  fare  among our competition in the impact of state and local taxes?  Not any better unfortunately.  Each year, the District of Columbia, Office of the Chief Financial Officer, publishes a report that estimates the tax burden citizens would pay in metropolitan areas across the country.  Read the report at www.retirementliving.com.   The report  ranks the cities according to their income, property, sales, and auto tax burdens.

Char/Meck ranks in the top 10 in the country of the most tax burdened cities in the CFO’s report(for a family of 3 earning $50,000), coming in at number 9 out of the 51 cities ranked.  Our local burden matches that paid  by citizens in Los Angeles at an estimated 10.6% of income or $5,311.  According to the report, we pay more in taxes than citizens in New York, Boston, and Minneapolis. 

Surely other states and cities in the Chiquita sweepstakes with lower tax burdens made their case for the company to move to a more tax friendly location than Charlotte, Mecklenburg County, and North Carolina.  And to be fair, the decision to relocate encompasses many “non-financial” factors.  We are blessed with a moderate climate, a diversity of landscape, close proximity to major ports and airports, and an educated work force.

But with so much emphasis being placed on the Chiquita sweepstakes, we lose sight of the plight we citizens face as employees in keeping and finding work and, as business owners,  in growing and expanding our businesses, especially during the current recession, and especially when burdened by some of the highest business and personal taxes in the country. 

With unemployment in the state and the county still over 10%, and with every dollar the state and the county and the city spends coming from our funds to invest in and grow our businesses, we are past time for an across the board tax rate reduction that would make current North Carolina businesses more competitive and that, along with across the board federal tax rate reductions, would spur national and international job growth, without having to pay relocating businesses millions to cross the state border. 

The “Ronald Reagan” strategy of creating business expansion through tax rate cuts works every time it’s tried.  It puts control of job growth back in the hands of entrepreneurs, but takes it out of the hands of politicians. And it eliminates the need for Mr. Bastiat’s “broken window” theory as there is no need for politicians to grandstand their accomplishments using the fruits of other’s labor.

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