NC Budget and Tax Center

The Fiscal Times: state tax cuts fail to deliver promised job creation

Jobs11-5During the debate over last year’s billion-dollar-a-year tax cut plan, supporters made a lot of big promises about the supposed economic benefits of cutting corporate and personal income taxes for wealthy individuals and highly profitable corporations. The problem—as many warned at the time—is that tax cuts almost never live up to their promises.

And that’s the point made in a recent piece by the well-respected Fiscal Times. In order for the tax proponents’ claims to be true, North Carolina would have needed to generate job growth that is significantly better than other states and the national average. According to the Fiscal Times:

The trouble is that the promised job growth hasn’t really materialized.

To be sure, with the U.S. economy as a whole adding jobs at a pace of 250,000 per month, there aren’t many states seeing a downturn in employment anymore. But the promises that went along with the tax cuts and reduced spending weren’t about keeping up with the rest of the country, but about surging ahead.

The Fiscal Times examined the job creation record of North Carolina and two other states that have experimented with deep tax cuts—Kansas and Wisconsin—and found that:

The dramatic tax cutting doesn’t appear to have done nearly as much for job growth as promised.

Wisconsin and Kansas, for example, have actually lagged the national average in job creation since their big tax cuts and budget cuts were enacted:

The Milwaukee Journal Sentinel says that Wisconsin ranked 35th of the 50 states in job growth during the first three years of Scott Walker’s term, and dead last among its immediate neighbors, including, Minnesota, Illinois, Indiana, Iowa, Michigan and Ohio….”

Kansas hasn’t fared much better. According to the Center on Budget and Policy Priorities, the state’s rate of job growth has lagged the national average since Brownback’s tax cuts took effect.

In fact, Kansas was supposed the be the poster-child for supply-side economics, but the tax cuts slashed so much revenue without delivering any meaningful economic growth that the state’s revenue has fallen by $700 million—almost 12 percent below what the Sunflower State’s own budget analysts had predicted just last year. In comparison, this is a bigger collapse in state revenues than Kansas experienced during the depths of the Great Recession. Revenues have fallen so precipitously, in fact, that Moody cut the state’s bond rating in May over fears that Kansas state government would be unable to meet its legal financial obligations, even after unprecedented cuts to education.

And what about North Carolina and our own experiment with budget-busting tax cuts?

 

North Carolina, at least, matched the national average in job creation in 2013. But the total number of jobs added to the state’s economy in the second half of the year – when the tax cuts went into effect, was actually smaller than the total number added in 2012.

Remember, the only way for tax cut proponents to live up to their promises is for North Carolina’s economy to grow significantly faster than the national average. But as the Fiscal Times piece—and BTC’s own analyses over the past seven months—makes clear, this just isn’t happening. Tax cuts have utterly failed to unleash the promised boom in job creation.

And even more troublingly, North Carolina may be starting to see the same big revenue losses experienced by Kansas. In today’s budget negotiations, legislators acknowledged that the gap between actual and expected revenues ballooned to $452.6 million in the 2014 fiscal year. And this could just be the tip of the iceberg. The most recent estimates from state budget analysts have shown expected revenues falling by another $191 million for the next fiscal year (2015), a shortfall that national analysts have predicted could grow to as large as $600 million—clearly indicating the growing costs of these misguided tax cuts.

Tax cuts are a poor strategy for creating jobs and growing the economy, and these three states’ records are proof in the pudding. State lawmakers in North Carolina should halt the next round of tax cuts that are scheduled to go into effect next January.

2 Comments

  1. Alex

    July 11, 2014 at 4:09 pm

    It’s ridiculous to expect huge job increases from tax cuts that just went into effect on January 1. The purpose is to make the state enticing for companies looking to expand, but these decisions sometimes take years to materialize.. If you look at the 8 fastest growing states currently in the US , they all have low-tax environments.

  2. Allan Freyer

    July 11, 2014 at 4:52 pm

    The point of the FT piece is that *none* of the states that enacted big tax cuts have seen the promise job creation. It’s hard to ignore the Kansas experience–big tax cuts in 2011, job creation rates well below the national average in the years since.