Tax reform in NC turning heads

by Mark Shiver, Capitol Connection, July 19, 2017.

Tax reforms in North Carolina have been drawing attention to the state from conservatives and liberals alike, usually with differing opinions about how positive those reforms have been, but the financial community sees good things coming out of the state’s tax reforms policies.

Forbes.com featured an article on June 28 by Patrick Gleason, director of state affairs at Americans for Tax Reform, and a senior fellowat the Beacon Center of Tennessee, that touted North Carolina as the new national model for tax reform. Gleason wrote, “North Carolina, more than any other state in recent years, has provided a model for what pro-growth tax reform and conservative fiscal policy looks like, and it deserves more attention from the national media than it receives.”

The Des Moines Register online featured this headline in its July 18 issue: “Limited Government Policies Can Solve Iowa’s Fiscal Challenges.” The story was about gaps in the state budget of Iowa and other states.

In the article, John Hendrickson, a research analyst with the Public Interest Institute in Muscatine, IA, wrote, “Iowa policymakers must consider tax reform. The issue of tax reform was sidelined during the 2017 legislative session, but legislators cannot delay any longer. Iowa policymakers should not be scared away from tax reform because of the lower-than-projected revenues. As an example, North Carolina lawmakers in 2011-12 faced a $3 billion budget gap and in response to this budget crisis they not only reformed the budget by controlling spending, but also enacted major tax reform.”

Hendrickson also wrote, “Because of the budget and tax reforms, North Carolina’s economy is growing, it has maintained a AAA bond rating, and the budget is experiencing a $580 million surplus. Tax reform and fiscal prudence are resulting in the economic growth in North Carolina. Policymakers must remember that tax cuts do not automatically pay for themselves and spending must be controlled to avoid budget deficits. Nevertheless, tax cuts do provide a fiscal stimulus and can create additional revenues.”

Hendrickson continued, “Iowa policymakers can learn from North Carolina’s example. Priority-based budgeting along with prudent tax reform will create an opportunity for Iowa’s economy to grow and keep the vital functions of the state government funded. States that are following limited government policies of low tax rates and prudent fiscal policies are doing the best economically.”

In the face of its own budget crises, Hendrickson makes a compelling case that Iowa should imitate North Carolina and the success it has had through sensible spending and tax reform.

Those on the left cannot grasp the truth that lower taxes lead to growth. But, it is quite simple. Allow people and businesses to keep more of their hard-earned money, and they will spend more. Businesses will need to hire more employees to keep pace with demand, leading to more with income to spend and greater demand for goods and services. Revenue to the state will rise as more tax dollars are generated through consumption, not through being forcibly taken by the government. North Carolina has effectively implemented this logarithm, and unemployment is down, revenue is up and growth continues to rise.

Some point to Kansas as a failed experiment in tax reform. But, reduced spending, the other key component of successful tax reform was not implemented by the Kansas legislature as it was in North Carolina. Gleason wrote, “However, the Left’s obsession with Kansas actually demonstrates what a weak hand Democrats have to play in opposing federal tax reform, or rate-reducing tax relief in the states.”

Spending by the state must be reined in and prudent. The Republican-led legislature in North Carolina has kept a rein on spending since gaining the majority in the General Assembly in 2011. Prudent increases in state spending, or preferably decreases in state spending, must be done in tandem with tax reform.

Gleason noted, “One of the biggest mistakes Kansas lawmakers made was their failure to rein in spending at the same time that they cut taxes.”

In written testimony to the House Ways and Means Committee on May 18, the American Legislative Exchange Council’s Jonathan Williams wrote, “Much of the criticism about Kansas is based on preconception and myth, rather than empirical data and actual trends. Pro-growth tax relief can be trusted to make states more competitive, but it takes time to develop and must be offset with appropriate spending reforms.”

Another objection from the Left regarding lowering taxes is that it only benefits the wealthy, however, the General Assembly’s nonpartisan Fiscal Research Division reported Tuesday that the state budget that recently passed with bipartisan support will provide tax relief to 230,000 lower-income citizens in the state.

Increasing the standard deduction is clearly a benefit to the middle class and those with lower incomes, as they typically do not itemize their tax deductions.

If the legislative leadership continues to take a conservative approach to the economics of the state, prudent spending, lower taxes and saving for the unexpected, North Carolina will likely continue to be held out as a state for other states to imitate.

http://nccapitolconnection.com/2017/07/19/conservative-tax-reform-in-nc-turning-heads/