One reason that reduced taxes might not result in substantial job creation in this economic environment is that firms that decide to use their excess cash to expand operations might do so in another state or another country. To take advantage of lower labor costs, companies have been shifting production to Mexico, China, and other low-wage countries. Because of weak demand for its appliances, Whirlpool cut 5,000 jobs and closed a plant in Arkansas that manufactured refrigerators. Whirlpool shifted the production of refrigerators to its plant in Mexico. In recent years, other companies, including Ford, General Motors, General Electric, Coca-Cola, and RCA have opened plants in Mexico. These moves, of course, create jobs, but they are not in America.
Krispy Kreme, the doughnut manufacturer headquartered in Winston-Salem, recently announced plans to expand operations to Colombia, South America. This move is part of its plan to have at least 900 international shops by the end of 2017. It is also opening operations in the Washington, DC area, Florida, Texas, and other states. Thousands of jobs will be created, but they will not be in North Carolina. Any increase in cash to Krispy Kreme resulting from a decrease in North Carolina taxes will shift North Carolina money to support job creation elsewhere.
BB&T, a Fortune 500 company based in Winston-Salem, NC, is also using excess cash to expand operations and increase jobs – in Connecticut, Oregon, California, Tennessee, and Texas. This expansion is expected to result in an increase in company profits, dividends to stockholders, and the firm’s stock price. The continued expansion of BB&T with excess cash from its operations and from the decrease in North Carolina taxes will benefit the firm’s stockholders and job seekers in Connecticut, Oregon, California, Tennessee, and Texas, but is will have little or no benefit for job seekers in North Carolina.
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