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During yesterday’s tax reform debate on the House floor, we heard a lot about the need to cut personal income taxes so that small businesses can create jobs and the economy can grow.  This is a growing refrain among advocates for tax cuts for the wealthy, so common in fact, that policymakers made it once before—in 2011, when they passed an exemption of business pass through income, an exemption that they are now repealing (apparently the tax cut didn’t work).

As with many of the claims made during the debate about taxes this session, the idea that personal income tax cuts spur job creation is just not borne out by the facts.

Personal income tax cuts for the wealthiest taxpayers do not target actual small business job creators. Only 2.7 percent of personal income taxpayers are owners of small businesses that have employees, according to the U.S. Treasury Department. Moreover, profits from small businesses with paid employees account for less than 4 percent of the total income earned by households with incomes over $100,000 nationally.  There is no evidence that businesses owned by high income taxpayers have more employees than those owned by lower income taxpayers, and as a result, no reason to provide tax cuts that disproportionately benefit those with the highest incomes.  And for many small business owners of any income level, there is often limited interest in growing the size of their business—consider a family restaurant, for example—so again, cutting these business’s won’t lead to job creation.

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The ink was barely dry on the tax deal announced by the governor and legislative leaders before some supporters started backing away from promises that no one will see their taxes go up and that employers will come rushing to North Carolina.

Legislators who backed the plan insisted everyone would benefit. But the Tax Foundation, a Washington, D.C. group that was among the most prominent supporters of the drive to slash taxes for corporations and the wealthy, now says it’s impossible to predict how the scheme will affect individual taxpayers.

“You can always find an example that’s going to be lower or higher,” the group’s Elizabeth Malm told the Greensboro News & Record. “It kind of depends on what your situation is.”

Malm also contradicted another key argument of the tax plan’s supporters: that it’s just what North Carolina needs to create jobs. “I don’t think anyone thinks that, if you change your tax code a little bit, companies are going to come flying in,” she said.

In today’s House debate, one lawmaker who backed the plan acknowledged that the jobs argument was, well, just a belief. We agree – and it’s a false belief at that. In fact, jobs have failed to materialize in other states that have slashed their income taxes.

Unfortunately, the truth was an afterthought in the blind rush to cut taxes. The results might have turned out differently if we had more time to debate this overhaul of the tax code.

Proponents of the Joint Tax Plan claim that all taxpayers will benefit from cutting the personal income tax rate. During debate on the tax plan on yesterday, opponents highlighted analysis provided by Fiscal Research that confirmed that some taxpayers would indeed see their income taxes increase under the tax plan. Below are additional examples of taxpayers who would see their income taxes increase.

 

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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.

Despite the claims that North Carolina needs to cut taxes and shift the tax load on to middle-class and low-income taxpayers to remain competitive, such an approach will actually undermine the competitiveness that our state has achieved. If we look across a range of metrics on outcomes for North Carolinians, businesses and the economy, North Carolina is indeed competitive. 

Tax rates are not the sole factor that drives the state’s economy nor does it make or break the reputation of North Carolina as a desired place to raise a family and operate a business. Below are four examples, among many, that highlight areas in which North Carolina has made positive progress. Read More