Why last year's tax cuts are giving rise to big problems
Published May 14, 2014
by Alexandra Forter Sirota, NC Policy Watch, May 13, 2014.
It is increasingly clear that the changes to state law in the tax plan enacted last year by the North Carolina General Assembly and Governor McCrory are setting the stage for big problems this year and well into the future.
Indeed, we can no longer blame budget shortfalls and our inability to invest enough in critical things like our schools on the Great Recession and its aftermath. Across the country others states are watching as their tax revenues begin to recover, and as a result, they are beginning to boost public investments back to old levels. North Carolina, on the other hand, is poised to keep cutting.
North Carolina also can’t blame “out-of-control” spending. In fact, North Carolina continues to spend less as a share of the economy than the 40-year average. At the same time, it is containing costs in key budget areas, like health care, better than most states.
In truth, North Carolina has no one to blame but itself. Because what is really happening here is the fallout from state policymakers’ foolish pursuit of tax cuts for the wealthy and profitable corporations on the dangerous gamble that it would create jobs.
Latest reports find that the state’s revenue is down $445 million in the current fiscal year and $191 million next fiscal year. This is likely just a sneak preview of the long-term problems this plan will cause if state leaders allow the tax plan to continue move forward. Policymakers must move immediately to stop any future tax cuts from being implemented and reassess what has already been done.
The growing cost of the tax plan means the stakes are high. Policymakers have limited their ability to invest in proven foundations of economic growth—an educated workforce, modern infrastructure, and research and development at institutions of higher education. There will be lots of excuses in the days and weeks ahead. But the decision to deliver costly tax cuts to the wealthy and profitable corporations is central to why policymakers can’t invest in these areas that their constituents know bring opportunity and prosperity.
At a time when qualified teachers are leaving the classroom, when students are struggling to finish their much-needed post-secondary education with less financial aid and higher tuition, when working families earning low wages have lost a tax credit proven to help them get ahead and support their families, falling short on critical public investments will only erode our competitive position – now and in the years to come.
After all, North Carolina had achieved a solid position compared to our neighbors and the nation by educating our citizens, investing in the roads, electricity and broadband that connected all communities to modern-day infrastructure, and ensuring that the health of our citizens was supported not just by a strong public health system but by a vibrant private health care industry.
North Carolina’s story is not unlike those of other states that have seen their economies perform best when they make smart investments in public services. A classic example is Kansas – which continues to lag the nation in job creation and experience slow income growth after having enacted massive income tax cuts. Tax cuts for the wealthy and profitable corporations have failed to deliver economic booms in other states. North Carolina should expect no different.
The fiscally responsible move now is for policymakers to stop further tax cuts from being implemented and begin repairing the damage. To move forward with a plan that benefits so few and costs us all so much is a mistake we will spend decades paying for.
Alexandra Forter Sirota is the Director of the North Carolina Budget and Tax Center.
May 14, 2014 at 10:17 am
Norm Kellly says:
So how do the states who have implemented a more level tax policy compare to those states that have continued on the tax and spend plan? Those states who have continued the Demoncrat plan of penalizing success, penalizing profitable businesses - at least some of them - and giving money away to specific chosen favored businesses. How does their economic recovery compare to the plan adopted by NC?
Once again, we see someone, probably a lib or at least a supporter of lib policies, encouraging penalizing success, penalizing companies that are profitable (that is, if they don't fall into the chosen group of businesses favored by libs), and spending more on government make work projects. These same people who believe allowing people to keep more money in their pockets is BAD always, consistently, constantly claim that tax policy has no affect on people's lives. When libs raise taxes & fees on all of us, including business, they claim that it will either have zero affect on how people live or such a small impact on our daily lives that it's not worth considering. So, if raising taxes has no impact on our daily lives, why does cutting taxes have a dramatic affect on us? Well, that's a simple answer.
The truth is that tax policy always has an impact on daily life. When you raise taxes it means people have less money to spend on other things that may be necessary to our daily lives. When this state penalizes success, those people with money have the opportunity to move to Texas or Florida. When the state penalizes successful companies not on the favored list, they have 2 choices. First, they move their business to a state that is more favorable to them. Second, they move to a state that is willing to provide a break for this specific company while at the same time penalizing companies already doing business in the state. This pick-and-choose method of luring business to a state is referred to as 'incentives'. Instead of making the playing field level for everyone, the pickers-and-choosers want to have the power to decide which businesses are on the chosen list and which ones aren't.
Leveling the playing field for everyone has a long-term positive effect on everything. Just recently the town of Cary released it's proposed budget. My water/sewer/garbage rate is going up. Really don't mind too much. But what I do mind is that at the same time the Town has decided to give $375,000 to a company to expand it's business in town. If it's good for the company to expand, then these types of incentives shouldn't be needed. The state and county are also going to give incentives to this company. How about the tax policy is made fair & balanced for EVERY BUSINESS in the town, county, and state? How about tax policy be set such that every company realizes that they are being treated fairly, and no incentive is needed to encourage growth. How about we don't penalize me, you, and other businesses that continue to pay taxes, and probably increase fees to support the 'new' company, so that everyone is treated fairly? In order to provide 'incentives', an unlevel playing field, for one means that the others suffer. Since NO GOVERNMENT agency at ANY level of government has ANY money of it's own, in order for the government to give away some of my money, it means that they need to steal more from me. How is this justified? How does this make sense to anyone? Is it that ALL of the rest of us are penalized 'equally' that it is justifiable? If it were only me being penalized to support the $375,000 incentive, then would more people object? But since it's all of us being penalized, then it's acceptable?
Raising taxes is never a problem for libs & big government types. Implementing MORE government make-work projects is never a problem for libs. For some reason, allowing people and businesses to keep more of OUR money in order to do more with our money to actually stimulate the economy is a bad thing. What do the facts & statistics show about the areas still controlled by libs who continue to spend state money and penalize success? How do these numbers compare to those areas where conservative, small-government, intelligent regulation types are in control? How does this affect the future?
May 14, 2014 at 7:00 pm
Richard Bunce says:
If this were really important and not just politics as usual pitting large voting blocks against small voting blocks, she would be calling for across the board tax increases...
