A half dozen economic challenges that tax cuts at the top don’t fix

North Carolina legislative leaders are once again debating the value to our economy and well-being of cutting taxes for the wealthy and big companies. The debate tends to remain constrained to the short-run evidence from 2013 to the present on various traditional economic indicators at the state level. My colleague Patrick McHugh has pointed out that a review of that data should lead us all to conclude that the tax cuts since 2013 have delivered no special boost to the state’s economy.

And yet, we should also be considering the opportunity cost of North Carolina’s tax cut experiment.

It has kept our state from addressing genuine economic challenges that public policy and public investment could make progress on in favor of a flawed economic theory that at worst exacerbates the challenges and undermines a pathway to better economic outcomes for all.

Here are just SIX of the economic challenges that North Carolina faces that are not addressed by tax cuts at the top or for big companies:

  1. Job growth is concentrated in just a handful of counties, leaving the rest of the state struggling with too few jobs for those who want to work and the need for infrastructure to connect people to the areas where jobs do exist. Tax cuts that focus on reducing the rate on corporate profits don’t target the small businesses and homegrown companies that are the primary job creators statewide and integral to the smaller communities across the state. Instead, these tax cuts are primarily delivered to shareholders, many of whom do not even reside in North Carolina. At the same time, tax cuts drain the state of revenue that could provide dollars to local governments and regions to connect each community to where the jobs are.
  2. Income inequality continues to rise across the country and in North Carolina. Since the recovery began in 2009, until the last available data in 2015, the top 1 percent in North Carolina have captured more than all of the income growth. How is such a thing possible? The answer: When the income of the bottom 99 percent of North Carolinians actually declines over the same period. As has been well documented in the academic literature, there is no consensus that tax cuts for the highest income taxpayers will lead to new job creation.   Tax cuts at the top have made worse the concentration of income.
  3. The job growth that is happening isn’t paving the way to the middle class for majority of North Carolina workers and isn’t strong enough to accelerate wage growth for all. The quality of jobs that get created in an economy matter for the ability of those jobs to improve well-being. When jobs pay too little for people to make ends meet or make it difficult to move up the economic ladder, the ability to reach our economic stride is blocked. Tax cuts aren’t a tool for ensuring that jobs are good, quality jobs or that jobs are created in certain sectors that provide financial stability to workers. If they were, we would expect to see better job growth in manufacturing than we currently see in North Carolina.
  4. Structural barriers to employment persist for too many North Carolinians. Tax cut defenders don’t often acknowledge that a smaller share of North Carolinians are working today than was the case before the Great Recession. Such barriers block workers from staying connected to the labor force or advancing in careers, and they make it difficult to get into jobs in the first place. These barriers include the high cost of child care, the lack of transportation options, discrimination in hiring, and bias in the workplace. Tax cuts don’t remove structural barriers to achieve employment equity in our state. Instead, they drain the state of dollars that could invest in making sure that more people connect to good jobs thus benefiting us all.
  5. The long heralded economic transformation of North Carolina continues to disrupt communities and families. For decades, economists have written about the economic transformation of North Carolina from a primarily manufacturing-based economy to a more service sector economy. While not inherently bad, this economic transformation has left many communities without a strong industry base and many families with the challenges of dislocation from employment. Tax cuts undermine the state’s ability to support local planning for new economic opportunities and training for the jobs of the future, which doesn’t help smooth the economic transformation for communities and working families.
  6. Economic mobility across generations is low. In research comparing our communities to others across the country, North Carolina consistently ranks low in its level of economic mobility across generations.  This stagnation is not only counter to the American Dream, it harms children and undermines the foundation of our future economy.  Tax cuts at the top — and the elimination of tax credits for working families — have hurt our state’s ability to boost the well-being of children and families and support economic mobility across generations.

Tax cuts have failed North Carolinians. At a time when a historically long economic expansion could have provided our state with the opportunity to invest in our future and tackle the persistent economic challenges that hold our people back from thriving, our leaders have chosen to cut taxes for the few.

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