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Another key justification for tax cuts bites the dust: NC economy is already competitive with neighboring states

Throughout the ongoing tax reform debate, we’ve been hearing the same tired claims that North Carolina’s economy is failing to compete with our neighboring states. And during yesterday’s preview [1] of the Senate tax reform plan, we heard it again as justification [2] for a billion dollar tax cut.

There’s just one problem—these claims are simply not true

As a report released last week found [3], it’s clear that North Carolina’s economy is performing competitively with surrounding states across every major indicator of economic health, with the exception of the unemployment rate. 

And North Carolina has higher unemployment than neighboring states today because the Tarheel State has historically relied to greater extent on a handful of manufacturing industries [3] that have proved much more vulnerable to offshoring, outsourcing, and global cost pressures [3].  In 2000, more than 16 percent of North Carolina’s employment was concentrated in manufacturing, the most of any surrounding states. North Carolina lost almost 42 percent of its manufacturing employment between 2000 and 2011, greater than the loss experienced by any other neighboring state.

In fact, if North Carolina’s share of total employment in durable and non-durable goods manufacturing had resembled that of the nation as a whole, the Tarheel State would have 108,000 more jobs today than currently exist [3], and the state’s unemployment rate would likely be similar to neighboring states.

As a result, North Carolina’s unemployment problem is due to declining competitiveness in specific industries—not to lack of competitiveness in the overall business climate or tax policy. Faced with these very specific challenges, investing in job training and infrastructure to attract and grow the competitive industries of the future is a far better approach to reducing unemployment than the tax cuts currently discussed by the legislature.