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NC Budget and Tax Center

As North Carolina continues to recover from the Great Recession, growing more good-paying jobs in the state will require a skilled and educated workforce. As BTC analyst Cedric Johnson writes in the latest issue of Prosperity Watch, an increasing number of jobs are expected to require some level of postsecondary training, and meeting this workforce demand means that a growing number of the state’s public school students must exit the state’s education pipeline prepared to compete in a 21st century economy. And nowhere is this more important than among North Carolina’s lowest income public school students, a growing population that typically needs additional instructional supports to finish high school and enter the workforce fully prepared. See the latest Prosperity Watch for details.

 

NC Budget and Tax Center

During yesterday’s press conference announcing the latest tax cut package proposed by the General Assembly and Governor McCrory, we heard a lot about the need for North Carolina’s economy to become competitive again as justification for their plans to steeply reduce tax rates on corporations and wealthy individuals.

But the evidence just keeps piling up that North Carolina’s economy is already competitive—regardless of the Tarheel State’s personal and corporate income tax rates. In the latest piece of news from the U.S. Bureau of Economic Analysis, it turns out that North Carolina experienced some the fastest economic growth in the nation in 2012, as measured by the annual change in real per capita Gross Domestic Product—a clear sign that our state is far more economically competitive than our legislative leaders try to pretend.

By the numbers, here’s how North Carolina’s economic growth stacks up to other states:

  • North Carolina’s economy is one of the most competitive in the nation, growing by 1.76 percent last year, above the national average of 1.7 and faster than 32 other states.
  • North Carolina’s growth rate is competitive in the Southeast, fully half a percentage point above the regional average.
  • North Carolina’s growth rate ranked fifth out of 13 Southern states last year, outpaced only by Texas, Tennessee, Mississippi, and South Carolina. All of these states have lower median wages and higher poverty rates according to the Census Bureau than North Carolina, suggesting that whatever factors that are spurring their economic growth is not benefitting working families.

If North Carolina’s economy was uncompetitive as Governor McCrory and our legislative leaders contend, it’s hard to see it in how our state stacks up in terms of economic growth.

NC Budget and Tax Center

During yesterday’s Finance Committee debate over the latest iteration of the Senate’s billion-dollar tax cut plan, the bill’s sponsors repeatedly referenced the need to improve North Carolina’s economic competitiveness as the chief reason to cut income taxes.  While generating new job creation and economic growth is clearly a top priority for North Carolina, deep tax cuts to corporate and personal income tax rates are just not an effective way to accomplish these goals.

Much of the “evidence” tax cut proponents have cited in support of their proposals have been thoroughly debunked—both by the research of academic economists and the actual experience of states that pursued these policies. For example, out-of-state groups like the Tax Foundation have misleadingly claimed that “23 of 26” academic studies have shown that taxes hurt economic growth, but it turns out that these studies were either misquoted, cherry-picked, or failed to address the issue of tax policy at the state level.

Instead, a full look at the evidence reveals that tax cuts just don’t deliver. A panel of highly-respected economists from the state’s leading universities came before the Senate Finance committee last month and gave their much more rigorous and informed  response—one also at odds with the Tax Foundation study and the views of Senate leadership. In their experience, these economists said, there was no economic consensus that cutting taxes would lead to improved economic growth.  And they also noted that it would be important to consider the negative effects of reducing state spending if that was the way tax cuts were “paid for.”

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NC Budget and Tax Center

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 of the Senate tax reform plan, we heard it again as justification for a billion dollar tax cut.

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

As a report released last week found, 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 that have proved much more vulnerable to offshoring, outsourcing, and global cost pressures.  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, 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.