Regan, Goldwater, Friedman - and Carolina

by John Hood, John Locke Foundation and NC SPIN panelist, November 18, 2013.

Over the past three years, the North Carolina legislature has enacted Ronald Reagan’s favorite tax reform, Barry Goldwater’s favorite regulatory reform, and Milton Friedman’s favorite education reform. Yet some North Carolina conservatives of my acquaintance seem to think that the Republicans who lead the General Assembly have accomplished little.

It’s a strange, fascinating phenomenon.

As a consequence of my writing and broadcasting work, I frequently get invitations to speak to civic clubs, community groups, university classes, or other organizations around the state. During these appearances, I’ve been struck by just how wide the gap between public perception and political reality has become.

At one recent event, I explained the economic rationale for replacing the existing federal income tax code with a simpler, pro-growth Flat Tax of the kind that President Reagan and many of his economic advisors believed was the ultimate goal of tax reform. Afterwards, a local Republican activist came up, expressed him enthusiasm, and asked if I thought the North Carolina legislature would ever consider enacting such a tax plan.

Which is, of course, exactly what the legislature did in 2013 — a fact I had just finished explaining, obviously ineptly, to my audience. Starting in 2014, North Carolina will impose a single, flat-rate tax on a broader base of personal income. When fully implemented, tax reform will establish a flat rate of 5.75 percent, down from today’s income-tax rates of 6 percent, 7 percent, and 7.75 percent. The corporate income tax will also drop substantially. Before the tax reform, North Carolina imposed some of the highest marginal tax rates in the South. After tax reform, our marginal tax rates will be among the lowest.

While tax reform got the lion’s share of attention this year (but apparently not enough!) the North Carolina legislature continued to pursue other ideas popular with conservatives. For example, in each of the past three sessions, the General Assembly has enacted regulatory reform bills to contain or eliminate vague, costly, and counterproductive rules on business. Their handiwork would have thrilled longtime Arizona Sen. Barry Goldwater, who saw the growth of the regulatory state as an especially egregious problem.

“To me,” he wrote in 1974, “one of the most frightening aspects of this government by regulation is the fact that the rules and procedures are promulgated by people who were not elected to their jobs.” By ensuring that new state rules are truly authorized by state legislation, and that old state rules survive periodic review or else automatically disappear from the books, North Carolina’s new regulatory reforms ensure that current elected officials retain control over state policymaking — which is precisely the system that Goldwater favored.

As for school reform, while economist Milton Friedman didn’t invent the idea of employing parental choice and competition to improve education, he did much to publicize it in his books, columns, and media appearances over more than half a century of public life. Since his death, the Friedman Foundation for Educational Choice has become a leading voice for reform.

Over the past three years, North Carolina policymakers have turned these principles into policy by eliminating artificial restrictions on the creation and expansion of charter schools, and by authorizing a new scholarship program to assist low-income families who think their children might best be served by private schools. Tens of thousands of North Carolina students will benefit directly from these reforms — but hundreds of thousands more will benefit indirectly as district-run public schools respond to new school-choice options by improving their own educational performance, an effect that has now been documented in numerousempirical studies.

While most liberal Democrats and left-leaning independents will never embrace the Flat Tax, regulatory reform, or school choice, that’s not the case for most Republicans, independents, and moderate Democrats. They either like these ideas already or are amenable to persuasion. For Gov. Pat McCrory and legislative leaders, surely the first step is to make sure their own base knows they have just enacted Carolina versions of Reagan’s tax reform, Goldwater’s regulatory reform, and Friedman’s education reform.