Tax Cuts and the Future of North Carolina

by Jim Kasprzak

Key Points:

  • Trickle down tax cuts didn’t work in the 1980’s and they don’t work now.
  • Recent NC tax cuts for the wealthy and corporations have been balanced by an expansion of sales taxes, the elimination of the Earned Income Credit for low-income workers, and changes to the personal deduction so that lower income and middle class workers are paying more.
  • Large cuts in taxes must result in cuts to those government programs that result in more jobs and an expanding economy.
  • State spending on education has been drastically reduced with serious implications for the future economic growth of our state.
  • Tax cuts have “lost opportunity  costs” because North Carolina now lacks the funds to solve known problems.

taxcuts_for_the_rich.PNGIn the name of “tax reform” Republicans at every level of government have reshaped taxation systems to cater to the greed of businesses and the wealthiest individuals. To obtain the votes of ordinary citizens for this giveaway, conservative thinkers have created the fantasy of “trickle down” economics – the idea that reducing taxes for the rich would eventually benefit everyone through a wave of job creation and economic growth. This didn’t work on the national level for Ronald Reagan in the 1980’s, and hasn’t worked wherever it has been tried on at the state and local level. In Kansas, for example, extreme conservative Governor Brownback (R) promoted huge cuts in taxes, promising that this policy would bring great economic benefits to the state and its people. After his actions brought Kansas close to bankruptcy, he resigned under fire in the middle of his term, joining the Trump Administration in a colorfully named but harmless job as the “United States Ambassador-at-Large for International Religious Freedom.” The next Kansas governor and legislature (still Republican) scratched kitty litter over this embarrassing policy failure and raised state taxes by an additional $600 million.

The Republican legislature of North Carolina seems incapable of learning from the mistakes of others in its party, and has promoted the same illusory vision of economics. It has repeatedly made large cuts in state taxes for the wealthy under the pretense that the overall economy will benefit.  In 2013, for example, it eliminated the estate tax, a tax that had only affected 23 of North Carolina’s richest estates in the previous year, but that brought in an average of $1 billion per year in taxes. Other tax cuts, supposedly intended to benefit all North Carolinians, give the bulk of the savings to wealthy individuals and large corporations. Recent tax cuts have given the top one percent of earners in North Carolina (average income of $1.5 million) an average income tax cut of almost $20,000. In contrast, the bottom 20 percent of income earners (average income of $12,000) got a tax cut of just nine dollars. The rest of Carolina taxpayers received an average tax cut of $175. Other tax changes have made middle- and low-income citizens pay more. These changes include an expansion of sales taxes, the elimination of the Earned Income Credit for low-income workers, and a change to the personal deduction that limits tax benefits for large families. The total effect of these tax changes is that the poor are now paying considerably more taxes to subsidize benefits for the rich.

The absurdity of such an unrealistic economic theory is that large cuts in taxes must result in cuts to those government programs that result in more jobs and an expanding economy. Tax cuts starve programs intended to shore up infrastructure, develop businesses, educate and train workers, and make medical care affordable. It seems impossible that anyone could believe that a less educated, less healthy workforce would grow a healthier economy, so we must conclude that North Carolina’s Republican lawmakers have been focused on short term profits for special interests, with little concern for the future of North Carolina.

trickledown.PNGNorth Carolina’s cuts to state spending on education support this conclusion. Some state education cuts were direct and brutal. Businesses can no longer provide a portion of their corporate income tax for the Public School Building Capital Fund. Since 2013 this has resulted in a state-wide loss for school funding of almost $400 million.  Other cuts are more subtle, less visible. While legislators claim that the school budget is “fully funded,” the actual dollar amount is just above pre-Recession levels, despite the state’s 11 percent population growth over that period. In other words, the state funds $500 less per pupil than before the 2008 Recession, spends 40% less on books, and has drastically cut its support for capital expenses. Chatham County is gaining population much faster than the rest of the state, with a growth rate of 24.8 over the past decade – more than double that of the state – and is specially impacted by these cuts to education.

In addition to reducing funding to specific programs, tax cuts have “lost opportunity  costs” because North Carolina now lacks the funds to solve known problems. The North Carolina Justice Center has calculated that the billions of dollars no longer being collected through taxes could have been used to fully fund pre-K schools, solve the state housing crisis, and create a more skilled and better employed workforce.  Rather than improving the lives and opportunities of its citizens, the legislature has chosen to give more money to those who least need it.

An overall analysis by the Budget and Tax Center in 2017 concluded that North Carolina has received few of the benefits promised for the “trickle down” tax cuts made in the last five years. We know that, historically, whenever one party entirely dominates a government, it tends to go to extremes, since there are fewer reasons to moderate or compromise with other interest groups. The Republican legislature in North Carolina has been almost entirely unopposed for the past few years, and its actions have grown increasingly reckless and unresponsive to ordinary citizens. For the first time in the history of North Carolina, all five of the past governors still living – two Republicans as well as three Democrats – have appeared in a joint press conference to oppose amendments to the North Carolina Constitution proposed by the legislature. As we go into 2019, facing more wrong-headed budget priorities (passed this year over the governor’s veto) it is more important than ever to elect Democratic officials to represent Chatham county.

Protect the Constitution by voting AGAINST all of the proposed amendments. Make your voice heard in November!     

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