Last week, after four and a half years of strangling its state budget through tax cuts, Kansas finally cried “uncle.” The Republican-controlled legislature overrode Republican Gov. Sam Brownback’s veto of a tax increase and effectively brought an end to Brownback’s failed “real-life experiment” in whether tax cuts lead to a flourishing economy. They don’t.
When will North Carolina’s tax-cutting Republican leaders admit they’ve made the same mistake? From the looks of the budget bills passed by the state House and Senate, that day of reckoning won’t be coming in the next two years.
The budget bills that passed both chambers each total $22.9 billion, a 2.5 percent increase that is effectively flat given inflation and population growth. Democratic Gov. Roy Cooper proposed a $23.4 billion budget with a 5.1 percent spending increase.
And both of the Republican plans call for more tax cuts. The House tax cuts would cost $353 million over two years. The Senate plan calls for across-the-board individual and corporate incomes tax cuts that would cost $1 billion over the same period.
Granted, these cuts will help middle-income earners more than previous cuts, but they’re coming at time when the state is feeling the effects of austere budgets that extend back to the belt-tightening brought on by the Great Recession. Over the past 45 years, state spending as a share of the economy has averaged 6 percent. That share has declined and under the proposed budgets state spending will fall to 5 percent. That may look like a slight retreat, but with numbers so large it translates into billions of dollars less than what the state would traditionally be spending not only on its immediate needs, but on long-term investments in education, environmental protections and infrastructure improvements.
State Republican leaders say the comparison with Kansas’ failed tax-cut strategy isn’t apt. North Carolina, they’ll note, is running a budget surplus. But those extra dollars are only what’s in excess of suppressed spending levels. Any homeowner could generate extra dollars if they chose not to fix the roof, cut their children’s meals in half and didn’t use the heater in the winter. And when the extra money does accumulate, Republicans are putting much of it into reserves rather than meeting needs.
As Cooper said, “I’m looking for more vision from this budget. They don’t have to squirrel it all away or give it to those who already have.”
While Republicans boast of being frugal, what they’ve really been is extravagant in handing out tax breaks to the wealthy and corporations while expanding the regressive sales tax and ending the earned income tax credit that benefited the working poor.
Alexandra Sirota director of the NC Budget & Tax Center, which advocates for fair tax policies as part of the NC Justice Center, recently reported that more than three-fourths of the net tax cuts since 2013 have gone to people whose income is in the the top 1 percent.
This transfer of wealth from investment in public schools, universities, parks, roads and other basics to the wealthy and large corporations is weakening the state. Writes Sirota, “The tax cuts our state has enacted since 2013 will continue to erode these foundational investments and many others year over year, until future generations have no foundation to stand on, no pathway to walk to a higher quality of life.”
Republicans respond that a stronger state will come from tax cuts that improve the business climate, not more state spending. But North Carolina’s experience plainly points to the opposite. The state rose out of rural poverty by investing in its public schools and especially its public university system. That has in turn helped it become a respected center for education, research industries and health care.
There’s virtually no evidence that tax cuts are building the state economy. After years of Republicans reducing corporate and individual income tax rates, North Carolina’s job market is not generating quality jobs at a notable rate. John Quinterno, a Chapel Hill consultant who studies the state’s labor market, says the low unemployment rate masks an underlying weakness in employment because “job growth continues to be driven disproportionately by comparatively lower-paying fields that offer few benefits like leisure and hospitality services.”
And now even that growth is slowing. Quinterno says, “Despite the fall in the unemployment rate over the course of 2017, there actually has been no net job growth in the state. In April, the state actually had about 2,000 fewer payroll jobs than it did in December.”
The story in North Carolina isn’t Pat McCrory’s “Carolina Comeback.” It’s the relentless Carolina Cutback. It’s a destructive path that heads straight to Kansas.