NC lawmakers doubling down on losing hand of income tax cuts

Income-tax cuts for the wealthy and profitable corporations aren’t going to fix the challenges in North Carolina’s economy. Such cuts won’t close the state’s job deficit, grow the wages of everyday North Carolinians or support innovation in the private sector. On the contrary, they have undermined the state’s ability to invest in infrastructure, in research and development at public universities and in many other public services that underpin a strong economy.

Our legislators are pursuing a flawed strategy for the state, forcing reductions in programs that boost economic growth and financial stability for families and ultimately shifting the tax load onto those taxpayers and communities that can least afford it.

Doubling down on the losing hand of income-tax cuts in the pursuit of job creation doesn’t make much sense in the current context. The ability and interest of customers to purchase the goods and services made and delivered in North Carolina are by far the greatest drivers of hiring. Taxes pale in comparison to consumer demand.

Despite the research and experiences of other states that have recently cut income taxes – the majority of which have experienced slower job growth than the national average – North Carolina policymakers continue on. The legislature allowed a second round of income-tax cuts to take effect in January and is considering even more this legislative session.

However, while lawmakers continue to spout the “tax cuts are the solution to every problem” rhetoric, they are also hedging their bets. For example, the latest Senate tax-cut bill includes a rate reduction for profitable corporations and changes the way corporations determine how much of their profits should be taxed in North Carolina. It also expands subsidies for businesses that promise to move to North Carolina and create jobs. Tax cuts and subsidies represent two distinct ideas about what business needs to grow jobs – income-tax cuts were once heralded as an alternative to subsidies. Now policymakers suggest we need both, perhaps because they recognize neither is likely to work. Meanwhile, such a both-and measure would do more harm than good by driving up costs and reducing our ability to invest in proven economic development approaches.

Another example is the current proposal to reallocate state sales tax revenue in a way that would increase money for smaller counties at the expense of larger ones. Policymakers are hedging their bets on income-tax cuts at the state level by working to secure a greater piece of the limited sales-tax pie for their communities. While this is a tacit acknowledgment of the importance of adequate revenue to running a modern government, it only moves money around. The measure doesn’t address the revenue losses created by harmful income-tax cuts already in place.

Meanwhile, a robust debate about the state’s real economic challenges and the proven policies that can address them is missing. North Carolina needs to grow jobs in the short term to close our jobs deficit and get and keep people connected to the labor force. We need to make sure that wages for the average North Carolinian are growing and able to keep up with rising costs. And we need to make sure all communities are connected to economic development strategies that work.

The people of North Carolina need their legislators to stop pursuing risky bets and start debating sound public policy. Making investments in infrastructure that would create jobs in construction and related industries is one way to increase employment and build the foundation for job creation in the private sector. A higher minimum wage would grow incomes and make progress toward reducing the number of workers earning poverty-wages in our state. Funding a loan pool for small and micro businesses and committing to Main Street revitalization in small towns would accelerate job growth, particularly in rural communities that are still working to rebuild their local economies from the one-two punch of the loss of manufacturing and the Great Recession.

North Carolinians know a losing proposition when they see one. The continued pursuit of income-tax cuts in the face of the current body of evidence is fiscally irresponsible and will do nothing to promote economic growth that can be sustained.

Alexandra Forter Sirota is director of the Budget and Tax Center in Raleigh.