The Wilmington morning star., 1947-02-21
Corporate Taxes
And Wealth
THE CHARLOTTE OBSERVER

EIho 1OlnL ll-ldlCS
Assembly at it's hearing on corporate 1ranchlse
and income taxes last week was gwen some
nertinent facts that bring the question OIL re-
duction of these taxes down to actual oolafS
and cents in relation to the revenue Oh te
State of North Carolina.
The newspaper has long contended mat te
hioh tax rates on corporations in this state
80 80 . tendency to discourage large companies
from establishing new plants in North caro-
lima. with the result that the state IS losing
more revenue through the loss OF THESE plants
than it gains with its high tax rates.
If. for example, we have one corporation
with a net taxable income OF Sloo'ooo' Liz
State derives Sc, 900 in revenue IroHl UhiS W. ,
noration through it's 6 per cent income tax; II
w 49, rot the same amount of revenue with a
. aer cent tax or. if we reduced our 3 per
cont tax to q per cent, we could get 9o'ooo
IN revenue where we got only Sc, 600 from one
corporation. -, that
, 1.roer revenue could be derived from tne
two corporations with a FRANCHISE Tax Oh 9l
a thousand than on one corporation Will ~
present rate of SITS a thousand. ,..
=. That illustration is not an oversllhphcil"
t;on Of the problem, because it illustrates te
nrinciple that a greater revenue can De oe-
rived from q large number OF corporations al
. lower fax rate than can be obtained from a
smaller number at a higher rate.
Now. if it can be demonstrated that our
high tax rates are actually keeping corpora
from establishing new plants IN MS s'ae
Or from expanding those already mere, ue
o.sa for p lower corporate tax rate should
be proved.
That demonstration was given to the JOINT
finance committee last week by G.. l.. WllkEl-
son. head of the tax department OF the Amerl-
can Tobacco Company, when he told the mem
bers that his company has begun tne manu-
facture of Lucky Strike cigarettes IN KENTUCKY
and that tobacco storage warehouses nave
heen established in Danville, Va, IN prefer
ence to Durham.
The reason for this change, Mr.. wilkinson
told the committee, is taxes nothing but
taxes.
Kentucky levies an income tax. OF 4 per
cent on CORPORATIONS, compared with North
Cardinals 6 per cent. Kentucky imposes q
corporate franchise tax of 70 cents a thousand
on domestic and foreign stock only, II con-
trast with North Cardinals $l.75 a thousand
on capital stock, surplus, and undivided pro-
fits.
And 50 kentucky got the Lucky Strike plant
and its revenue. and North Carolina lost both
the plant and the revenue
Similarly, the storage warehouses were es-
tablished in Danville because Virginia puts an
income TAX of 8 per cent on corporations,
compared with North Cardinals 6 per cent.
and a franchise tax of 40 cents a thousand
compared with North Cardinals $1.75 a thou
sand.
AS a result, Durham lost the warehouses
and the property tax, and North Carolina lost
the income and franchise tax.
More than Two years ago this newspaper
cited the case of a large corporation that was
planning to establish a plant in the South at
a cost of $40 million. Vigorous efforts were
M odo ~ rot Tho p1on+ for North Coro1ipo h1i
the company cited the SITS franchise tax
and the 6 per cent income tax, compared
them with lower rates in another state, and
put the plant in that state.
Solely because of taxes, North Carolina lost
all of the revenue from this giant corpora
ton; moreover, since it would have employ
ed 20, 200 persons in this state, we lost also
the income tax on probably 5000 incomes.
Considering the vastly greater advantages
offered by North Carolina in the wav of abun-
dant power and other facilities. the corpora
ton would probably have placed that great
plant in this state if the income tax had been
as low as 4 or even 4 IL per cent and if the
franchise tax had been as low IS 81. 25 a
thousand. And the state would have been the
gamer IN increased revenue.
Mr.. Wilkinson cited to the joint finance com
mittee the tax structures Of 81 states and
showed them that of the 81 North Carolina has
eAiS iOo oi4of " ~ toIN1 AOh oSAtiSoo "
can we expect to attract to this state the
large numbers of new plants that are being
established all over the country as a part of
the great postwar industrial expansion when 30
other states are undertaking us?
We can't do it. And every lost business
means lost revenue to the State treasury.
We should not be deluded by the fallacy
o. confusing cause and effect as is done bv
those who argue that we are unable to re-
duce our tax rates until we have more wealth
to tax; because the known facts show that we.
cannot bring that wealth into the state until
the tax rates are first reduced.
The same fallacy has produced the argu-
nent that we cannot pay our eachers a pro-
fessioaal salary until the wealth is the product
of a higher level of education. The producers
must come before the product.
Any immediate loss in revenue through a
reduction in corporate taxes, therefore, would
be only temporary and would be recovered
many times over by lower levies On the in
creased wealth that would flow into the state.
So far we have been considering the cor
porate income and franchise taxes from the
standpoint of revenue lost to the State trea-
sury. But the loss in general prosperity for the
state and its business is no less important.
Every new plant established in this state
will provide new jobs. The holders OF these
Jobs will spend their wages and salaries WIN
North Carolina merchants; they will buy North
Carolina homes, consult North Carolina pro-
fessional men, educate their children IN North
carolina schools, contribute to North Carolina
project and causes.
But. if we continue to discourage these new
nlants. the workers will go elsewhere, as they
have been doing for the last decade In such
numbers that the industrial regions OF the
East and the Middle West have come to con-
slider North Carolina as one OF their most
dependable reservoirs OF intelligent, native
labor.
During the war $50, 900 of our best workers
miorated to other states, and thousands of
Thorn have not come back. Some OF them, no
doubt, we're among the $1,000 who would have