Pat McCrory, Jim Martin not so different

by John Hood, John Locke Foundation and NC SPIN panelist, Charlotte Observer, October 9, 2013.

See if you can identify this N.C. governor.

During his successful election campaign, he argued that business taxes were discouraging employers from locating or expanding in North Carolina. “I’m going to be a tax-cutting governor,” he proclaimed, “because I believe that will help to strengthen the state’s economy.” His opponent called the idea “a wild, off-the-wall gimmick,” “pure economic hocus-pocus,” and “tax breaks for the rich.” The News & Observer editorial board agreed, describing the candidate’s tax plan as “a peculiar chemical mix for the fiscal stability of state government.”

I’m talking about Republican Gov. James G. Martin, the former Davidson College chemistry professor who defeated Democrat Rufus Edmisten in 1984. Pat McCrory is the first Republican in the office since Jim Martin retired in 1993. Many McCrory critics compare him unfavorably to Martin, whom they now laud as “centrist” or even “progressive.” That’s not how Democrats and liberals described Martin and his ideas at the time.

During his 1984 campaign, he proposed to eliminate property taxes on business inventories and intangible assets, as well as to end the sales tax on food. Democratic officials reacted with scorn. Senate leader Craig Lawing said the plan was impractical. House Speaker Liston Ramsey quipped that Martin “has been in Washington too long. A lot of that voodoo economics has rubbed off on him.”

Martin made the prudential argument that repealing the inventory and intangibles taxes would encourage business expansion and job creation, particularly in rural areas. But he also described the issue in philosophical terms. “There are two basic approaches to government and the role that it plays in our lives,” Martin said. “At the heart of the argument is the question of fewer taxes or more growth in government.”

Left-leaning political analysts such as Abraham Holtzman of N.C. State credited his tax message as important to his victory. Martin used his first State of the State Address to press for a phased repeal of the inventory, intangibles, and food taxes, with an annual fiscal impact of $500 million when fully implemented.

In percentage-of-revenue terms, Martin’s proposal was far larger than the tax package enacted this year by Gov. McCrory and the General Assembly. The parallels don’t end with the tax issue, by the way. Democrats also excoriated Martin for his lack of experience in state government, his ties to Duke Power, and his support of merit pay for teachers. Sound familiar? And at his party’s Vance-Aycock Dinner in October 1984, Gov. Jim Hunt even warned that state Republicans were being “financed by out-of-state moguls of the radical right wing – people like Nelson Bunker, the Texas oil billionaire, and the Colorado beer baron Joseph Coors.” Shades of Art Pope and the Koch brothers?

Still, the situations differ in a key respect: Martin lacked both the veto and Republican legislative majorities. The General Assembly would eventually do away with the inventory and intangibles taxes, as Martin requested, but offset much of the potential economic effects by raising North Carolina’s corporate tax rate significantly. A Republican-led House and Democratic Senate would later roll the rate hike back some, but by 2013 North Carolina’s corporate tax rate still remained higher than when Gov. Martin was inaugurated in 1985. Rather than focusing on marginal tax rates, subsequent governors and legislatures preferred to offer businesses tax credits and other targeted incentives, a strategy both theoretically flawed and empirically ineffective.

I don’t mean to suggest that veto power and the partisan composition of the General Assembly are the only differences between Gov. Martin and Gov. McCrory. But I do know that if Jim Martin had possessed more tools to influence legislative outcomes, he would have enacted his original plan for business-tax relief – and made the tough decisions necessary to make it stick.

This year, McCrory and the legislature fashioned a tax-reform package that will pull North Carolina’s corporate rate down to 5 percent by 2015, and as low as 3 percent in subsequent years if revenue targets are met. Was their economic-growth strategy a betrayal of Jim Martin’s philosophy of government? No. It was its modern application.