N&O Swings and Misses With Tax Cut Critique | Beaufort County Now

The N&O this weekend published an editorial declaring that North Carolina’s corporate income tax cuts are “not working.” civitas, News & Observer, tax cut, critique, corporate income tax, november 19, 2019
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N&O Swings and Misses With Tax Cut Critique

Publisher's note: This post, by Brian Balfour, was originally published in Civitas's online edition.

  • Editors mislead readers with rhetoric on teacher pay and state revenue
  • Figures they cite reveal that NC's economic performance has actually improved since the tax cuts relative to neighboring states
  • Editors lament across-the-board tax cuts, but remain silent about Gov. Roy Cooper's crony handouts

    The N&O this weekend published an editorial declaring that North Carolina's corporate income tax cuts are "not working."

    The article, however, is chock full of misleading rhetoric and just plain bad economics.

    Right out of the gate, the authors tip their hand by using the smear term "trickle-down economics," a pitiful straw man signaling their lightweight status on economic issues - which I addressed more thoroughly HERE.

    More specifically, let's dissect several of the key claims s from the article:

  • State Revenue: "State employees, teachers and state services have certainly felt the reduction in state revenue."

    Teachers have received six consecutive pay raises, with a seventh proposed for the second year of the legislatively-approved biennial budget. The N&O conveniently omits the fact that Gov. Cooper has now vetoed four teacher pay raises. Indeed, the National Association of Educators (NEA) declared that North Carolina has the third fastest rate of teacher pay raises in the country since 2014.

    And there's been no 'reduction in state revenue.' The $24 billion state budget approved by the legislature (and vetoed by Cooper) would have marked an increase of $3.4 billion over the FY 2013-14 budget - a spike of 16.7 percent. Moreover, state revenue has consistently exceeded expectations for several years, resulting in revenue surpluses for five straight years, each amounting to hundreds of millions of dollars. The surpluses have enabled the legislature to re-build the state's 'Rainy Day Fund' to close to $2 billion earlier this year. These funds were used to provide a cushion for hurricane relief and prepare the state for a potential recession.

  • GDP Growth: "In terms of gross domestic product (GDP) from the fourth quarter of 2013 through the second quarter of 2019 ... North Carolina lags behind three of its four neighboring states. North Carolina's GDP growth was 27.2 percent, better than the U.S. (26.1), but less than Georgia (32.6), South Carolina (33.1) and Tennessee (29.2). North Carolina did outpace Virginia (20.9)"

    Two points on this. State GDP measures the overall size of the state's economy, so it is partially a reflection of population growth as well. North Carolina's population has been growing at a robust pace, but may fall short of Georgia, South Carolina and Tennessee, which alone could explain the difference in GDP growth rates.

    Second, the article fails to mention if North Carolina's GDP growth relative to neighboring states since 2013 is better or worse compared to the time period before the tax cuts - which would be a far more relevant measure gauging the impact of 2013 tax reforms. For instance, personal income growth in North Carolina from 2000 to 2011 ranked 26th in the nation, and GDP growth barely kept pace with the national average. Moreover, median household growth was so sluggish from 1996 to 2011, that NC's median household income went from being above the national rate in 1996 to falling to just 90 percent of the national level by 2011.

    In sum, the time since 2013 has actually marked an improvement compared to the trends before the tax cuts.

  • Private Sector Job Growth: "Since 2013, private sector job growth in North Carolina showed a 13.9 percent increase, better than the U.S. average (11.9) but less than Georgia and South Carolina (both 15.3)."

    Again, how does this compare to the years before the tax cut? From 2000 to 2011, North Carolina's pace of job creation fell noticeably behind the national average. The N&O article inadvertently admits that North Carolina's job creation improved relative to the national average after the corporate tax cuts.

  • Consumer Spending Myth: "A targeted tax cut can help a struggling economy when the tax savings go to consumers who will spend it."

    Here the N&O falls prey to the fallacy that consumer spending drives the economy. It doesn't. Rising consumer spending is the result of, not the cause of, economic growth. Investment spending in productivity is what improves economic conditions. I debunk this myth in this article.

  • Ignoring Actual Giveaways: "North Carolina's across-the-board giveaway to corporations during a period of economic growth is not that kind of tax cut."

    How interesting it is that editors harshly criticize a tax cut - which allows businesses to keep more of their own money - as a "giveaway," but never utter a word about literal taxpayer giveaways in the form of corporate welfare handouts that Gov. Cooper is so fond of. Across-the-board tax cuts are not only more conducive to sustainable economic growth but are far more fair compared to Cooper's crony handouts to politically-favored corporations. Why does the N&O not call out Cooper's cronyism?


    The N&O's editorial misses the mark by a long shot. Naysayers of the corporate tax cut were predicting budget doom and massive shortfalls. Instead, North Carolina state government has seen steady increases in revenue, even resulting in billions of dollars of revenue surpluses over the past six years. Teachers have received among the largest pay increases in the country since 2014.

    The revenue surpluses were the result of higher than anticipated tax revenues due to economic growth that exceeded expectations. Indeed, comparing North Carolina's economic performance relative to national and regional averages before and after the tax cuts finds a stronger performance after the tax cuts.

    The tax cuts have been a benefit to North Carolina. However, no amount of government spending will be enough to satisfy the ideologues at the N&O.


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