Commentary

Powerful new report: State tax cuts aren’t what produces job growth

The wonks at the Center on Budget and Policy Priorities are out with a new report that, once again, derides the central premise  of the “economic development” strategy being pursued by Governor Pat McCrory and the General Assembly.

Here’s the opening to “State Job Creation Strategies Often Off Base”:

To create jobs and build strong economies, states should focus on producing more home-grown entrepreneurs and on helping startups and young, fast-growing firms already located in the state to survive and to grow ? not on cutting taxes and trying to lure businesses from other states.  That’s the conclusion from a new analysis of data about which businesses create jobs and where they create them.

The data show that:

  • The vast majority of jobs are created by businesses that start up or are already present in a state — not by the relocation or branching into a state by out-of-state firms. Jobs that move into one state from another typically represent only 1 to 4 percent of total job creation each year, depending on the state.  Jobs created by out-of-state businesses expanding into a state through the opening of new branches represent less than one-sixth of total job creation.  In other words, “home-grown” jobs contribute more than 80 percent of total job creation in every state.
  • During periods of healthy economic growth, startups and young, fast-growing companies are responsible for most new jobs.  During the Internet-driven boom of the late 1990s and early 2000s, for example, startup firms (those less than one year old) and high-growth firms — which are likely to be young — accounted for about 70 percent of all new jobs in the U.S. economy.  Firms older than one year actually lost jobs on average; any new jobs they created were more than offset by jobs they eliminated through downsizing or closure.  In short, startups and young, fast-growing firms are the fundamental drivers of job creation when the U.S. economy is performing well.

State economic development policies that ignore these fundamental realities about job creation are bound to fail.  A good example is the deep income tax cuts many states have enacted or are proposing.  Such tax cuts are largely irrelevant to owners of young, fast-growing firms because they generally have little taxable income.  And, tax cuts take money away from schools, universities, and other public investments essential to producing the talented workforce that entrepreneurs require.  Many policymakers also continue to focus their efforts heavily on tax breaks aimed at luring companies from other states — even though startups and young, fast-growing firms already in the state are much more important sources of job creation.”

If only our state policymakers would pay attention and abandon their archaic and failed , tax cuts uber alles approach to the economy, North Carolina might really be making some hay. Unfortunately, that clearly is not the case.

Click here to read the entire report.

Commentary

Retired schoolteacher blasts McCrory’s bond proposal

In an op-ed in this morning’s edition of Raleigh’s News & Observer, retired schoolteacher Ned Gardner of Apex does a good job of giving voice to the reasons that some progressives are unhappy about the state bond package that’s coming up for a statewide vote in March. According to Gardner, it’s not the idea of funding important public structures; its the disingenuous way that the Governor and General Assembly are going about it:

“I will vote ‘no’ on the Connect NC bond issue in March. Do I support the higher education and state parks capital expenditures that the bond would fund? Most definitely. But I reject Gov. Pat McCrory’s “no tax increase” shell-game bond financing. If we support new expenditures for education and parks, we should create a clear revenue stream to pay for it: increase taxes.”

According to Gardner, the fact that the transportation component in the original bond package was removed and replaced by, in effect, a lasting revenue source (i.e. gas tax hike plus the end of the use of highway money for other important state uses) ought to be a lesson. Here’s how Gardner sums up:

“The Highway Fund issue is troublesome. Peter will be robbed to pay Paul. Presumably worthwhile on-going expenditures from the Highway Fund will be discontinued to accommodate the proposed ‘bond’ transportation projects. So to continue those previous on-going expenditures, a source of funding will be needed. I imagine that in the eyes of our current Republican political overlords, the huge state education budget looks like an inviting source for a bit of reallocation.

…The financial obligation of the bond issue if passed will be a given: It must be paid. So the cost will be extracted by the continuing educational trends of stagnant faculty wages, increasing class sizes, a dropping per pupil expenditure and ongoing large tuition hikes in the UNC system (already increased by 42 percent since 2008) and N.C. community colleges (increased by 81 percent since 2009).

If the bond issue passes, I can anticipate McCrory’s self-congratulatory ads in the upcoming gubernatorial campaign – the Champion of Education! My foot. We need to elect politicians who actually support education. And parks. Let’s work on that, and reject this fiscal shame of a bond issue. A grand bipartisan coalition of Democrats, tea party groups, far-right bloggers and your ordinary Republican voter (who views a bond issue with the same relish as a colonoscopy) can do it!

The bond campaign motto is, ‘Vote yes to invest.’ I say, ‘Vote no, but vote for Democrats who will properly fund education and parks – and quit giving tax cuts to the rich.’”

Many other progressives have a different view of the matter, of course. From their perspective, passage of the bonds is a pragmatic way to lessen the impact of the bad situation conservative leaders have produced. It will be fascinating to see which side holds greater sway in March and what it says about the long-term political debate in North Carolina.

NC Budget and Tax Center

Tax Foundation ranking not a true indicator of North Carolina’s health

You may have heard that North Carolina’s business climate is nearing top-10 status according a new ranking by the Tax Foundation, a tax policy research organization that favors tax cuts. If that sounds strange to you, it should.  Many of the inputs that businesses look to in order to succeed have failed to rebound after the recession because of neglect from state policymakers.

The 2016 State Business Tax Climate Index has many flaws that have been highlighted by critics over the years. It is clear, however, that one way to zip up the ranking is to simply cut taxes, often in ways that primarily benefit large multi-state corporations. And this result in forgoing the kinds of investments needed to improve the economic climate that allows all businesses and all North Carolinians to prosper.

As I’ve noted in a prior post, proclaiming that North Carolina’s business tax climate has leapt from one of the worst to now one of the best largely as a result of tax cuts provides no insight regarding the fiscal and economic health of the state.

Here are five reasons that the Tax Foundation rankings are the wrong foundation for making tax policy in North Carolina.

  1. Ranking focuses on cherry-picked tax policies that the Tax Foundation doesn’t like, rather than on the range of factors that genuinely drive business investment decisions.

The Tax Foundation index simply chooses elements of tax policy it likes best – e.g. a flat income tax rather than a progressive income tax structure – without solid empirical evidence as to the impact of favored tax policies on states’ economic growth. A flat tax income tax, for example, which the Tax Foundation favors, doesn’t take a taxpayer’s ability to pay into account and largely benefits the well-off. A progressive income tax structure, by contrast, considers ability to pay but is not favored in the ranking. Furthermore, states with relatively lower tax rates are favored without considering the impact of lower tax rates on their ability to raise adequate revenue for public services. The Tax Foundation mixes these selected tax policies together and labels the result a state’s “business climate.”

This sole focus on a state’s tax structure leads to an index that mistakenly assumes taxes are the most important factor in shaping states’ business climates and tells us nothing about a state’s economic health – like whether schools are good, higher education is affordable, roads and rails are in good shape, or the workforce has the skills needed for 21st century business. Read more

Commentary

Points to help you talk turkey on Thanksgiving

In case you missed it, the good folks at the N.C. Budget and Tax Center have prepared a nice contribution for your Thanksgiving potluck — a series of talking points to help you converse with your less-well-informed dinner companions. Enjoy!

Here are some key facts to throw out there as you pass the gravy boat and say “yes, please” to a second – or third – piece of pecan pie.

WHEN THEY SAY: “We need to attract more businesses to relocate here if we want North Carolina to grow. Cutting taxes, regulations, and unemployment insurance and not expanding Medicaid is the best way to do that.”

YOU SAY: First of all, it’s really people like you and me, consumers, who create jobs. Businesses hire when they see a demand for their products, so job creation really starts with making sure we earn a good living and feel secure enough to spend.

Even if we’re talking about where large companies choose to invest, state taxes just aren’t that big of a deal. You have to turn a profit before you pay taxes, so that’s what companies are thinking about first and foremost. Most companies look for educated workers, a good transportation system, and a place that their employees want to live before they think about taxes.

If North Carolina is going to do better, we need to focus on policies that will make everyone feel more economically secure.

WANT TO READ MORE? BTC Policy Basic: The Reality of Tax Cuts

WHEN THEY SAY: “The Carolina Comeback is real! Clearly these policies are working.”

YOU SAY: (Stage directions optional): The Carolina Comeback sounds nice but it’s not the reality for most North Carolinians and communities in our state.

First off, it’s a U.S. comeback, nothing special to North Carolina. We went into the recession as a country, and the recovery has happened nationwide. Read more

Commentary

This is how bad it’s gotten for teachers in North Carolina

school suppliesIn case you missed yesterday’s Fitzsimon File, be sure to check out the fascinating and damning find from the recent state budget that Chris highlights.

It turns out that conservative state lawmakers have been bragging in the aftermath of the 2015 session about how they revived a tax break for teachers that they previously put on the books in 2011 and then allowed to expire in 2013. The tax break provides a small deduction for teachers (at least, those well off enough to itemize deductions) for their out-of-pocket costs for purchasing classroom supplies up to $250. This means that if a teacher takes the full deduction — meaning they spent $250 or more on supplies — they would save a whopping $14.75 on their state tax bill!

You really can’t make this stuff up. As Chris noted yesterday:

“It [the tax deduction] reimburses teachers for [a tiny portion] of their purchases but also reminds them that the folks currently running things in Raleigh have no intention of properly funding the schools. And they are counting on teachers themselves to pick up the slack.

Thanks to cuts in recent sessions, there are now 7,500 fewer teacher assistants in the classroom before the recession.

Taking the philosophy of the tax credit for supplies to its logical conclusion, teachers who don’t like it and need the extra help in the classroom should stop complaining and hire the TAs themselves and pay them personally. Maybe lawmakers will reward them with another tax break worth a few dollars.

That’s what it has come to in our public schools. Adequately funding the classrooms is apparently no longer on the table.”

The bottom line: It’s hard to know what’s more laughably outrageous — the notion that lawmakers would underfund schools and toss this minuscule crumb in the first place or that they would then go on to brag about it as some kind of real achievement. Whichever the case, it’s clear that: a) state leaders continue to treat North Carolina school teachers as so many disposable units and b) the cynicism surrounding their miserly and shortsighted policy decisions knows few bounds.