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Not that very many people with any common sense really believe that cutting taxes on corporations and the wealthy would really jump-start the North Carolina economy, but here’s some additional info that places this patently absurd idea in its proper light.

As reported today by Travis Waldron at Think Progress:

“Even as American corporations are raking in record profits, the largest among them are shifting larger amounts of money away from the United States and into offshore tax havens that allow them to pad their bottom lines even more, according to multiple analyses of legal filings made since the beginning of 2013.

The Wall Street Journal found that the 60 largest companies moved $166 billion offshore in 2012, shielding 40 percent of their earnings from American taxes and costing the U.S. billions in lost revenue.”

Got it? The problem is not lack corporate profitability; it’s lack of demand from cash-strapped, debt-strapped consumers. Generally speaking, businesses generally have plenty to invest, but are holding back or squirreling money away because they don’t perceive a demand for the products and services they might produce. Cutting taxes and public spending further just perpetuates the vicious and destructive cycle in which we are already stuck.

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.