North Carolina’s Republican leaders frequently brag about how their tax-cutting policies have fueled North Carolina’s recent economic growth.
But how much of that is political spin, and how much has North Carolina simply benefited from the national recovery?
A new study sheds some new light on what former GOP Gov. Pat McCrory hailed as “the Carolina Comeback” and what U.S. Sen. Thom Tillis — a former state House speaker — has said should be a model for the rest of the nation.
Neither political party is likely to be totally happy with the study.
Michael Walden, an economist at N.C. State University and an author of several books on the state’s economy, conducted a study of the performance of North Carolina’s economy over a 29-year period (1988-2017).
The study points to a few things that Democrats will likely use as talking points, and a few takeaways that Republicans will like.
The study throws a wet blanket over the Carolina Comeback, saying it has been a relatively weak recovery.
Walden found that of the six periods of economic expansion during the 29-year period, the weakest was the 2010-2017 period. That was the period in which the Republican legislature was the driving force for public policy in Raleigh, pushing through record tax cuts, cutting regulations and trying to shrink government.
Walden used six measures of economic growth: growth in real (inflation-adjusted) GDP (gross domestic product), employment, real GDP per capita, real personal income per capita, employment per capita, and worker productivity.
Compared to both the rest of the nation and the rest of the Southeast, Walden reports, North Carolina underperformed in five of the six economic growth measures during the 2010-2017 era.
This would suggest that Republican claims about North Carolina’s recovery are overblown.
But there is some good news for Republicans in the study.
When the period of the recovery is divided into two sections — the first period 2010-2013 and the second period 2014-17 — the second period shows that North Carolina’s rate of growth increased.
That was the period when the legislature’s cuts in corporate and personal income taxes kicked in. During that three-year period, North Carolina’s economy outperformed the nation and the Southeast in all six categories.
“Do these results prove the tax rate changes that began to take effect in North Carolina beginning in 2014 caused the state economy to expand faster?’’ Walden writes. “Such a question can rarely be answered definitely using economic analysis. While there appears to be a correlation between reduced tax rates and economic growth in North Carolina in the 2010 period, such a relationship does not prove causation.”
The problem with economics is that you can’t conduct clinical trials as you can with medicine — provide one group a test drug and another group with a placebo. So it is difficult to know how North Carolina’s economy would have performed if the tax cuts had not been adopted.
If you look at the states with the highest growth in real GDP last year, it’s hard to draw any conclusions from their politics or policies. The top six were Washington, Colorado, Nevada, Arizona, Utah and California, according to the U.S. Bureau of Economic Analysis. Three have Democratic governors and three have Republican governors.
North Carolina was tied with the 15th highest real GDP growth rate with Michigan and South Carolina.
One also doesn’t know how much of the Tar Heel State’s experience is just part of the natural business cycle.
Walden notes what he calls “the bust or boom” nature of North Carolina’s economy — which has historically been more reliant on manufacturing than other states. North Carolina economically grows faster than other states during good times, but also drops more rapidly during recessions. So North Carolina’s economy produces wilder swings than many other states.
Even though North Carolina’s economy has come a long way since the Great Recession, Walden is worried about the decline of worker productivity during North Carolina’s economic recovery — something that did not occur during any recent expansion or recession.
He attributes the decline to the rapid growth of jobs in low-wage industries such as fast food and clerical work.
In other words, even as North Carolina’s economy recovered, too many people who once held decent middle-class jobs are now flipping burgers.
Which argues for North Carolina to do a better job of worker education, training, apprenticeships and similar programs.