When a firm chooses to use its excess cash to purchase another company, reduced taxes that the firm enjoys might not result in substantial job creation. Lowe’s Companies, Inc., the second-largest home improvement retailer in the world, based in Mooresville, N.C., recently purchased Orchard Supply Hardware in California for approximately $205 million in cash. Had these funds been used to expand operations in North Carolina, jobs could have been created here. Additional cash granted to Lowe’s through a decrease in North Carolina taxes may be used to purchase other companies out of state, with no help for North Carolina job seekers.
Another firm that is using excess cash to purchase another firm rather than expand operations in North Carolina is Lorillard, the nation’s third largest cigarette manufacturer based in Greensboro, NC. Lorillard recently spent $49 million to purchase SKYCIG, an electronic cigarette maker located in Great Britain. The Lorillard CEO indicated that “our mission is now a global one,” probably reflecting the fact that cigarette sales in the US are declining because of health concerns related to cigarette usage. Thus, any additional cash granted to Lorillard from a decrease in North Carolina taxes is likely to be spent expanding its international operations, not expanding and creating jobs in North Carolina.
Reynolds American, headquartered in Winston-Salem, recently announced that it will spend $27.4 billion to acquire Lorillard. The $27.4 billion is a large amount of money that could have been spent expanding operations in North Carolina and hiring more workers; instead it is being used to purchase another company. Furthermore, combining the two companies is expected to generate significant cost savings; much of the cost savings will come from a reduction in the number of employees. It is not reasonable to expect that giving Reynolds American more cash through tax reduction will create jobs in North Carolina.
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