The expensive marketing campaign that an extreme, anti-government national group launched in North Carolina this week to promote a great tax shift that will hurt the state’s economy flies in the face of the facts.
Arlington, Virginia-based Americans for Prosperity is throwing financial weight behind a plan that would drastically cut North Carolina’s corporate income and personal income taxes. The billions of dollars in tax revenue lost due to the tax cuts would be replaced largely through a higher, expanded sales tax – or, just as bad, they won’t be replaced and North Carolina will lack the resources to invest in the building blocks of economic growth.
Here are the facts that no amount of money spent on marketing can cover up:
- At least 60 percent of North Carolina taxpayers would see their taxes increase — but the wealthiest 1 percent would get a tax cut. Under the concept being supported that would eliminate the personal and corporate income tax , a family earning $24,000 a year would see its taxes go up $500, while a family making $1 million a year would get a $41,000 tax cut. This is primarily because the sales tax would need to expand and increase to bring in the same revenue. That sales tax rate could be as high as 12.5 percent to make up for the revenue loss from personal income tax elimination alone.
- North Carolina will not reap any short-term benefits from simply cutting taxes. Every dollar given away in a tax cut has to be made up for with a tax increase on another business or individual or with a cut to state services. At best, any benefit from a tax cut will be offset dollar for dollar, and result in no net economic growth in the short-term.
- Cutting state and local income taxes does not boost the economy. Among many similar studies a rigorous analysis  by the Congressional Research Services clearly shows no relationship between top tax rates and rates of savings, investment and productivity growth.
- Businesses hire when customer demand for what they sell increases. Taxes have nothing to do with that. As we wrote about in a report on the harm of corporate income tax cuts released yesterday, without increased demand tax cuts will just raise profits to companies and dividends to shareholders with no economic benefit. On the other hand when demand increases businesses hire regardless of their taxes. Even if tax cuts did spur the economy the mount the average company would save wouldn’t pay many salaries.
- Cutting taxes puts at risk public investments that do help create jobs and build a strong economy. Abandoning investments in education, transportation or public safety, all of which are building blocks of a strong economy over the long haul, to pay for a tax cut that won’t create jobs puts North Carolina’s economic future in jeopardy. Businesses need a well-educated, highly productive workforce, access to markets and suppliers, a sound transportation system, and high quality of life for employees. That’s what North Carolina has offered over the years, which is why numerous surveys, studies and rankings show this to be a “business friendly” state.
Those who claim cutting taxes will spur job creation and economic growth ignore the reality that the opposite is likely to happen, in the short run and far into the future. No marketing campaign can mask the facts. What’s underway in North Carolina is a great tax shift – not tax reform. That’s a direction North Carolina can’t afford to go.