A new BTC Brief out today demonstrates that recent claims by House leadership regarding job gains resulting from tax cuts are overstated and ignore the job losses resulting from cutting back on public investments that cutting taxes requires.
Several House leaders have cited a recent analysis by the UNC Center for Competitive Economies (C3E) to support their claim that cutting taxes will create jobs. Using input-output analysis, the C3E researchers attempted to predict the likely impact on jobs—direct, indirect and induced jobs—from tax cuts totaling $1.6 billion and $2.0 billion in each of the next two fiscal years.
House members in favor of tax cuts have touted the number of jobs C3E estimates the tax cuts will generate—16,083 in the next fiscal year and 19,439 the following fiscal year. But C3E’s analysis did not assess the employment or economic impact of the spending cuts that cutting taxes would necessitate—a critically important part of any tax change analysis. Analyses conducted in Arizona, Kansas, and California estimated that job losses from spending cuts are usually 1.5 to 2 times higher than anticipated job losses from tax increases, even before accounting for cuts that result in lost federal funding (as with cuts to Medicaid).
Even this patently bad deal very likely overstates the case for tax cuts. The IMPLAN fiscal multipliers (i.e. the economic bang-for-a-buck of tax cuts) estimated in the C3E analysis are far above those determined by mainstream respected economists at the non-partisan Congressional Budget Office (CBO) and Moody’s Economy.com. For corporate and high-income tax cuts in particular, the multipliers returned by C3E’s analysis may overstate the economic impact by five times or more.
Contrary to the conclusions some have drawn from the Center for Competitive Economies’ report, cutting taxes will not only result in more job losses than keeping taxes at current levels and sustaining public investments, opting for tax cuts over public investments will also undermine the gains made over past decades to build the highly skilled workforce and first-rate infrastructure necessary for the North Carolina and its people to compete for the jobs of tomorrow.