NC Budget and Tax Center

The trial balloon that would not float

The stories we have featured this week from states across the country that have experimented with tax cut proposals hold a common  lesson for North Carolina: Tax cut proposals are unpopular when it comes to the details and mathematically difficult to make work.  Since most states must balance their budgets, cuts to income taxes require either higher sales taxes, which hit middle- and low-income families hardest, or cuts to public services that people rely on, including education, health care and transportation. In state after state, tax cut trial balloons have been floated and sooner or later deflated. And where tax cuts have been enacted, they have failed to deliver the promised economic boom.

You can read each of the stories here from Georgia, Kansas, Louisiana and Nebraska.

These lessons from other states should be heeded by North Carolina policymakers as they pursue similar flawed tax policies. Their counterparts have paid high political costs for failure, while the public has been reminded of the value that taxes bring in the form of good schools, safe roads and healthy, secure communities.

North Carolina has never been a follower. By pursuing tax cuts, our lawmakers are adopting the worst ideas from other states and making many of the same mistakes. Among them:

  • North Carolina’s tax cut proposals shift the tax load to middle- and low-income taxpayers.  This is the same course tried, and abandoned, in Louisiana, Kansas and Nebraska, where tax cut proposals would have boosted taxes for the majority of taxpayers, primarily middle- and low-income households, while wealthy households would have gotten a tax cut.
  •  A tax cut proposal by North Carolina’s Senate leadership would reduce dollars available for schools, health care and other investments.  In Georgia, the goal of keeping tax cuts from reducing total revenue quickly eroded as special interests sought to maintain their tax breaks.   Kansas had a similar experience, and that state is now struggling to overcome huge revenue losses, rather than getting the economic “shot of adrenaline” the governor promised. In Louisiana, lawmakers found it impossible to boost sales and cigarette taxes enough to make up the money that would have been lost from income tax cuts. Though North Carolina Senate leaders say their plan would make up for lost revenue by extending the state sales tax to a wider range of services, they are likely to face similar resistance.

The cautionary tales from peers in Louisiana, Georgia, Kansas and Nebraska should put a halt to tax cut proposals in North Carolina. Instead of following failed models, North Carolina should reclaim its status as a leader among states and pursue better options for changing our tax code – ones that support economic opportunity and create a strong foundation for economic growth.

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