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July 12, 2007

Clawbacks

What are clawbacks? And how do they relate to controversial business incentives designed to boost North Carolina's economy? N.C. State University economist Mike Walden answers.

"We are not talking about food -- unfortunately we are talking about economics," says Dr. Walden, a North Carolina Cooperative Extension specialist. "And clawbacks actually ... is a term that is related to business incentives.

"People know about business incentives: This is where the government reduces or perhaps forgives taxes to a particular business in order to get that business to locate, in our case, in North Carolina," he adds.
"They are very controversial: Some people think they are needed; other people think they are not needed.

"But anyway, clawbacks may actually be a middle ground here that can get both opponents and proponents of incentives together, because with clawbacks incentives are based on performance.

"What happens is the firm [that] is locating, in our case, in North Carolina, gets a promise of, for example, a tax break as long however as they met certain performance standards," he explains. "That is, as long as after a certain number of months or years, they have made the investments and created the jobs that they have said.

"If those standards are not met," Walden continues, "then some of those incentives are reduced, or clawed back, to the state. And in fact clawbacks are now being used by most states, including North Carolina, and I think they are a way of softening some of the opposition to business incentives."

Posted by deeshore at July 12, 2007 08:00 AM

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