Editorials

With sweeping tax cuts, US follows NC over a fiscal cliff

Current House Speaker Tim Moore (right) of Kings Mountain, chats with then-Speaker of the House Thom Tillis at the North Carolina General Assembly in Raleigh in 2013, the year Republicans began a series of corporate and personal income tax cuts.
Current House Speaker Tim Moore (right) of Kings Mountain, chats with then-Speaker of the House Thom Tillis at the North Carolina General Assembly in Raleigh in 2013, the year Republicans began a series of corporate and personal income tax cuts. rwillett@newsobserver.com

As Republicans composed their new tax-cut legislation, U.S. Sen. Thom Tillis said they should go the way of North Carolina. When he was state House Speaker in 2103, Tillis said, he and his fellow Republicans cut corporate and personal income taxes and North Carolina’s economy soared.

“The results are phenomenal, and I’m completely convinced when we pass this bill we’re going to completely unleash the power of the American economy, and we’re going do for the families across this nation what we started doing for the families in North Carolina five years ago,” Tillis said at a news conference.

Congressional Republicans would have done better to look closer at North Carolina before once more putting their faith in the trickle-down fantasy. What happened here may now happen everywhere. And if you’re not among the 1 percent, the results will be more phantom than phenomenal.

The federal tax overhaul is similar to the sweeping cuts made in North Carolina, and we can expect the same result: flat wages for workers, widening income inequality and a government unable to keep up with the needs of its people, let alone invest in their future.

$3 billion in lost revenue

In North Carolina, tax cuts have reduced state revenue by more than $3 billion a year and the savings have gone disproportionately to large, profitable corporations and wealthy individuals. The state economy has improved, but the economy has improved across the nation. There’s virtually no evidence that state tax cuts have improved the family finances of middle- and low-income North Carolinians. There is evidence that tax cuts are taking a toll on the state’s schools, environmental protections, social services and infrastructure investments.

Congressional Republicans describe their tax overhaul for the wealthy and corporations as a “jobs bill.” Even if it was one, the timing is odd since the current 4.1 percent unemployment rate represents a 17-year low. The jobs issue now – as baby boomers retire and immigration is restricted – is having more jobs than people qualified to fill them. The legislation is a tax cut for big business and the wealthy, a reward for donors, not workers.

The effect of the federal tax cuts will not be as immediately detrimental to government services as those at the state level because the federal government can run deficits while North Carolina is legally bound to balance its budget annually. But the rising national debt will drive up interest rates making the debt a larger drag on the federal budget. And that, in turn, will create a pretext for what Republican legislators have wanted to do all along: cut Medicare, Medicaid and Social Security.

Jobs growth lags population

The federal tax changes will mirror North Carolina’s experience by showing that tax cuts do not lead to job creation. The Budget & Tax Center, a project of the nonprofit North Carolina Justice Center, this month issued a report on the status of the state’s job market 10 years after the Great Recession. While state Republicans often tout raw numbers of new jobs, the Budget and Tax Center put those numbers in context and found that job growth has lagged well behind population growth.

Its report said: “Total employment in North Carolina is 6.5 percent higher than it was on the eve of the Great Recession, but the state’s population has expanded at more than twice that rate (15.6 percent) over the same period. This combination of rapid population growth and slow improvements in the job market mean that North Carolina is still well below the level of employment that existed before the Great Recession. Had job offerings in North Carolina kept pace with the pace of population growth over the past ten years, we would have roughly 375,000 more jobs today than currently exist.”

To keep pace with population growth, North Carolina should have increased state spending to bolster its K-12 schools and its university system. It should have expanded Medicaid and spent more on preventative health care and battling the opioid epidemic. It should have allowed increases in the minimum wage and focused on the growing rural-urban divide.

Instead, it cut taxes and struggled to get by on the cheap. Now Republican lawmakers are committed to lowering both corporate and individual income tax rates again in January 2019 even as state revenues are dipping below projections. The General Assembly’s nonpartisan Fiscal Research Division is projecting budget shortfalls of $1.2 billion to $1.4 billion in years 2019-2020 to 2021-2022.

Republicans in Congress have followed North Carolina’s path on taxes. It doesn’t lead to more jobs. It leads to a cliff.

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