If you listened to Governor McCrory’s press event on Tuesday, you might be a little confused about the tax plan that pasted last year and what it means for our state.
Tax reform should be about modernizing the tax code in a way that ensures the system can continue to serve its fundamental purpose: providing enough revenue to support core public services. It should also be ensure greater revenue stability while not asking more from low- and middle income taxpayers as a share of their income than from wealthy taxpayers. But all three of these principles of a sound tax system will be compromised under the tax plan passed last year.
Here are half dozen things that you should know that you didn’t hear at Governor McCrory’s press event:
1. It won’t help our economy. The ALEC ranking touted and the policies that it is based on have no relationship to economic growth. The Tax Foundation ranking suffers from a strong ideological bent and disregards fundamental measures of what businesses actually pay in taxes. In fact, the policies they endorse hurt state job creation and average people’s paychecks.
2. This experiment didn’t work in other states. Speakers tried to both claim immediate economic benefits while also holding in check expectations by saying that real gains would take years. But evidence from other states suggests the benefits touted are not likely to materialize. Kansas experimented with income tax cuts recently and the results have been slower job and income growth than the nation.
Speakers pointed to a declining unemployment rate, but that is because there are fewer people in the labor force, not because of new jobs brought on by unemployment insurance changes or the tax plan. In fact, North Carolina’s employment growth is in line with the nations and to be expected at this point in the official recovery.
3. It will mean big cuts to services people care about. As Governor McCrory said in 2013, tax reform should be revenue neutral so that public schools can deliver a quality education to each child, our infrastructure can be updated to support business and protect the health of our environment, and businesses can feel secure in the state’s commitment to invest in a high quality of life. And yet in yesterday’s press event, there was no mention of the net loss in revenue resulting from the tax plan —estimates suggest at least $650 million less when fully implemented—which will limit the state’s ability to invest in proven strategies to support economic opportunity, mobility and growth.
4. Very few businesses will benefit under the plan and all will be hurt by the inability of the state to invest in the workforce and infrastructure that supports a strong business climate. This is because:
- Entrepreneurs aren’t necessarily going to benefit from the tax plan. Many entrepreneurs are operating at a loss in their early years and are reliant on investors to get a firm footing. Yet the Angel Investor Tax Credit which encourages investors to support entrepreneurial ventures was eliminated in the tax plan.
- Businesses hire more employees if they see demand for their goods and services increase, not because they got a tax break.
- Many small businesses who pay taxes through the personal income tax are sole proprietors, and 9 out 10 of those do not have any employees so those personal income tax rate reductions are unlikely to spur significant job creation for that group. These businesses are not in a position to add jobs nor do they want to for the business model.
- The corporate income tax cuts benefit a few profitable corporations and those tax cuts are more likely to flow out of the state to shareholders or workers than remain in North Carolina.
5. There was no sales tax cut in 2013. In fact, the sales tax was actually expanded to some services last year. In order to claim credit for cutting the sales tax, they reaching back to 2011 when the temporary sales tax expired. Of course, if state legislators and McCrory seek credit for that expiration, they should also accept blame for allowing the state EITC to expire on their watch.
6. Everyone is not going to have more money in their paycheck. The final tax plan will raise taxes for the bottom 80 percent of taxpayers on average. And it is most likely that teachers, firefighters, and nurses will not receive a tax cut. Many of these essential workers in our communities earn wages that would qualify them for the Earned Income Tax Credit if they had children, they also earn wages that would put them within the bottom 80 percent of taxpayers.