Are Tax Cuts Hurting North Carolina? | Eastern North Carolina Now

Publisher's Note: This post appears here courtesy of the Carolina Journal. The author of this post is Raheem Williams.

    Recent op-eds and editorials from the News & Observer have lambasted the state legislature's plan to use a budget surplus to cut taxes. Similarly, Patrick Conway, an economics professor at UNC-Chapel Hill, and Wesley Harris, an economist and a Democratic member of the state House of Representatives recently argued that the Republicans have neglected more pressing priorities in favor of costly tax cuts. Both the News & Observer editorial board and the deceitful economic duo singled out high-tax states like California as a point of comparison to bolster their arguments against tax cuts.

    This is laughable.

    To debunk the claims that high-tax states are doing better than North Carolina, one can just look at the results. Conway and Harris correctly note that California experienced faster per-capita GDP growth than North Carolina from 2012-2019, but it's what they omitted that is far more damning. All economists know GDP is an imperfect measure, a statistic that simply can't be taken in isolation. For a more holistic view of how North Carolina is doing relative to its progressive national peers, let's consider measures that even the most ardent progressives would agree with: school performance, poverty, and inequality.

    California spends more per pupil for K-12 education. This has been true for at least a decade. Despite this, according to the U.S. News & World Report, the California K-12 system (overall ranking of 40th in the nation) ranks significantly lower than North Carolina's K-12 system in college readiness, math and reading. Similarly, New York state (overall ranking of 19th) is also behind North Carolina in outcomes despite spending almost double per student. This doesn't mean North Carolina shouldn't strive to improve. With an overall ranking of 15th in the nation, there's plenty of room for advancement. However, it's just grossly deceitful to assume tax and spending policies guarantee better educational outcomes. The real-world evidence simply does not support such a presumption.

    Are high-tax progressive states winning the war on poverty and inequality?

    Well, no.

    In regards to homelessness, California and New York saw their per-capita homeless rates explode between 2011-2019, while homelessness declined in North Carolina (and almost everywhere else in the country). Likewise, the U.S. Census Bureau's supplemental poverty measure, which considers welfare aid, shows that California and New York have a notably higher percentage of their residents living in poverty than North Carolina does. And this is despite the fact that California and New York have substantially higher minimum wages, higher corporate tax rates, and higher individual tax rates.

    However, the story doesn't end there.

    One of the key selling points behind high tax rates are the purported redistributive effects of such. And yet, even California and New York fall behind North Carolina on the key issue of inequality. According to the left-leaning Economic Policy Institute, California and New York relative to North Carolina have far higher levels of inequality. The top 1% earned 20.6 times that of the bottom 99% in North Carolina (lower than the national average). In comparison, the gap was 36.7x in California and 44.4x in New York state. Using Census data, Zippa found that from 2010-2017 inequality also grew slower in North Carolina, relative to California and New York. An analysis by the St. Louis Federal Reserve also shows North Carolina performing better than California and New York regarding the black-white racial income gap. In short, there is no compelling evidence that higher income tax rates translate into lower levels of inequality on the state level.

    Now, it would be dishonest to pretend North Carolinians could not do better. We can and should strive to. Likewise, it is dishonest to present tax cuts as a magical solution to all public policy issues. However, it is extraordinarily disingenuous and arguably dishonest for left-leaning analysts to argue tax cuts are hurting North Carolina. Several high-tax progressive states underperform North Carolina in the metrics that progressives themselves claim matters the most: education, poverty, and inequality. Public policy is complex and challenging. However, blindly throwing money at the public sector is not a golden ticket to prosperity.

    Raheem Williams is an economist, writer & policy analyst currently based in Carrboro, NC.