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NC Budget and Tax Center

In his press conference yesterday, North Carolina House Speaker Thom Tillis reiterated his desire to eliminate the state’s corporate income tax, expressing his earnest (but misguided) belief that abolishing the tax will ensure stronger job creation across the state. This belief is misguided because it rests on a fundamentally flawed assumption—that corporations will always reinvest the savings they get from the tax repeal into creating new jobs or paying existing workers higher wages inside North Carolina.

In reality, there is no guarantee that multinational corporations with locations and subsidiaries across the entire world will take their North Carolina state tax cut and reinvest it in their North Carolina operation. In fact, if we look at recent national corporate investment patterns, there’s actually no guarantee that these corporations will reinvest additional income in job creation (or higher wages) at all.  

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NC Budget and Tax Center

In light of Arthur Laffer’s visit to North Carolina this week, a new analysis by the Institute on Taxation and Economic Policy on the Civitas/Laffer study for our state is particularly timely. 

Their main findings are that the report:

“• Fails to control for a large range of important non-tax factors that affect state economic growth.

Confuses cause and effect by assuming that declines in personal income in 2008 were due to taxes rather than the Great Recession.

Fails to examine the impact of increased sales taxes on the economy.

Makes claims that have been previously discredited by mainstream economists and relies on misleading and cherry-picked data.

Ignores the importance of taxes in financing public investments that have a far greater positive impact on economic growth than reducing tax rates.”

Check out the report in detail here.  It adds to the mounting evidence that the Civitas/ Laffer/Senate proposal is a bad one for North Carolina, not least because its case is not supported by the rigorous research needed for undertaking such a radical overhaul of the state’s tax system.

NC Budget and Tax Center

In recent weeks, lawmakers in North Carolina have proposed a number of tax reform plans that would abolish the corporate and personal income taxes and shift the state’s revenue base to a consumption tax.  As the newest issue of Prosperity Watch describes, taking this approach would immediately eliminate 60 percent of the state’s annual revenue. How would the state fill in this $12 billion dollar hole? See here for more details.