In NC, the GOP governs by the Big Fib
The Big Lie that drives Republican politics at the moment is former President Donald Trump’s false claim that he won the election. The party has peddled another falsehood for more than 40 years.
Let’s call it the Big Fib: Cutting taxes on the rich and corporations will stimulate the economy and the benefits will trickle down to lower-income earners. That it doesn’t work has been proven by experience.
This fib is often joined with a second dubious claim that low taxes are the main reason companies move to a state. Juan Carlos Suárez Serrato, a Duke economics professor who studies taxes and corporate relocations, said lower taxes attract “some businesses on the margins,” but generally a low tax rate “is not the only reason or the main reason that firms move.”
Indeed, a 2019 survey by Area Development magazine found that the corporate tax rate ranked No. 6 in what matters as companies consider relocating. Access to highways, availability of skilled labor, quality of life and construction costs all ranked higher.
Republican lawmakers who control the General Assembly have spent the past decade following these illusions and claiming real results. Now, with state coffers flush thanks to an unexpected rise in tax revenue and a surge in federal COVID relief funds, Republicans are pushing for yet more tax cuts .
Republican leaders rolled out a plan last week that will phase out the 2.5 percent corporate tax – already the nation’s lowest – over seven years and cut the personal income tax from 5.25% to 4.99%. The plan would also raise the standard deduction by 18 percent and increase the child tax deduction by $500.
Senate Finance Committee Chair Warren Daniel, R-Burke, announced the plan by saying, “For the past decade, North Carolina has led the nation in tax reform policy under Republican leadership, and as a result our state’s economy is booming and state revenues are at an all-time high.”
Well, senator, that’s just not true.
The state’s economy is doing well because the national economy has been improving for a decade since the Great Recession. The pandemic was expected to end that rise, but it turns out that higher earners remained employed, the stock market surged and key drivers of the North Carolina economy – information technology and biotechnology – thrived.
The state has a $5 billion surplus largely because Republicans have refused to spend what’s needed. State spending as a percent of the state economy is well below historic levels. State revenues are also up because of rising fees and an added tax on online sales.
Low tax rating
The repeated debunking of trickle-down economics has not stopped Republican lawmakers from putting the notion at the center of their governing philosophy.
The Carolina Partnership for Reform, which advocates for “restraints on the size and scope of government,” recently touted North Carolina’s rise to No. 5 on the State Economic Competitiveness Index put out by the American Legislative Exchange Council (ALEC). Essentially, it’s a measure of how much a state is willing to cut taxes and neglect safety net programs.
If this is the formula for prosperity, it’s not clear from the experience of high-tax states. New Jersey has a $6.3 billion budget surplus. California, which ALEC has ranked near the bottom for economic outlook since 2014, has an 8.8 percent corporate tax rate, a top income tax rate of 13.3 percent and a budget surplus of $75 billion.
Nonetheless, North Carolina’s Republican leaders will continue striving to be No. 1 in low taxes and spending. At a time when strong tax revenues and federal pandemic relief funding offer a rare chance to increase spending on public education and improve the health and well-being of less fortunate North Carolinians, Republicans will again seek to waste the opportunity on costly tax cuts that undermine the true basis of the state’s prosperity.
