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NC Budget and Tax Center

Policymakers are using the Tax Foundation’s flawed readings of academic literature to suggest that there is an economic consensus that their tax plans are the right path forward for North Carolina. The Center on Budget and Policy Priorities released a report yesterday that dug into the research and finds that no such consensus exists.

  • Numerous academic studies find no correlation between state tax levels and various measures of state economic performance (for example, income growth, firm formation, job creation and net household migration).
  • Other studies find that higher taxes are actually associated with better economic performance when they finance higher-quality education and better infrastructure needed and desired by businesses and households.
  • Some studies find that taxes have no effect in one time period and a negative effect in another, a positive effect on one measure of state economic performance and a negative effect on a different measure and/or different effects depending upon how tax levels are measured and the time frames under examination. But there is no consistency in the findings as to which time periods or measurements matter.
  • Nor are there consistent findings as to which taxes matter most for economic growth. Some studies find that state corporate income taxes don’t affect economic growth but state personal income taxes do, and others conclude precisely the opposite.
  • Finally, some studies conclude that while taxes’ effect on economic performance is statistically significant, the effect should be viewed as of such little economic significance that it should not be allowed to drive decisions as to whether taxes should be increased or cut.

To put it simply, there is no economic consensus that cutting taxes is a good strategy to grow the economy.

NC Budget and Tax Center

This week’s issue of Prosperity Watch grapples with an under-reported and historically unprecedented trend in North Carolina’s economy–while the state has experienced a total of more than 4 percent total growth in Gross Domestic Product from 2006 through 2011, job creation over this period has been virtually nonexistant. This trend in manufacturing is even more pronounced.

So what’s causing this troubling divergence between economic output and job creation? See the latest Prosperity Watch for details.

NC Budget and Tax Center

Some members of General Assembly have repeatedly claimed that elimination or deep cuts to personal income tax rates, especially on high-wealth individuals can solve our high unemployment and sluggish economic growth.

New research from the Center on Budget and Policy Priorities released this morning finds that pursuit of such policies are not worth the risk.

After comparing the economic performance of those states that pursued deep cuts in the 1990s and 2000s and those that did not, it turns out high tax cut states have grown far slower. Read the full report for details.