A tax-reform plan that rewards the wealthy and stalls the state
When the N.C. General Assembly convenes Wednesday, a few state lawmakers are probably going to introduce a bill that would slash income taxes for wealthy North Carolinians, scrap tax credits for low- and middle-income families and raise sales taxes on things like groceries and gas.
The same bill has already been introduced in two other states I once called home.
In 2011, a conservative think tank in Oklahoma paid an out-of-state consulting firm led by Reagan economist Arthur Laffer to write a report that suggested that Oklahoma would benefit by lowering taxes on businesses and the wealthy and scrapping credits for lower- and middle-income residents. That November, Laffer visited Oklahoma to promote the report. The following January, the governor introduced a bill. Economists in Oklahoma panned the proposal, however, and it failed.
In 2012, the same kinds of groups used the same strategy in Kansas. Wealthy conservatives paid Laffer’s firm to write a report making the same claims and to visit the state to promote it. Unlike their neighbors to the south, Kansas lawmakers enacted the plan.
This year, the same groups are using the same playbook in our state. A wealthy conservative foundation has paid Laffer to write another report and to fly to our state to promote it. To the people pushing these policies, North Carolina isn’t anything special.
To me, it is. I grew up in Southeast Kansas, and I went to college in Tulsa. Now I teach at Duke, and I’m proud to call North Carolina my home. I’m very concerned, however, that the groups that hocked flawed economic theories in my old home states the last two years are now trying to slap a Tar Heel sticker on their ideas.
The groups behind these proposals have their one-size-fits-all state-level strategy down to a science, but they don’t have a handle on the actual science of state tax reform. It’s easy to see why their ideas are appealing. Who wouldn’t like to grow our economy and lower taxes without cutting vital services like schools and public safety?
However, independent economists in every state where the Laffer plan has been introduced – including North Carolina – have found serious problems with the evidence its proponents have used to back it up. No matter how low the tax rate is, businesses and wealthy people won’t relocate to a state where the schools are bad, the streets are unsafe and the infrastructure is crumbling – things that all tend to happen when taxes are cut to the levels that the Laffer plan outlines.
In Kansas, these kinds of essential services are already in serious danger. After passing the Laffer bill, the state is now projecting $800 million annual budget deficits and has extended an emergency sales tax that should have expired years ago. The Kansas budget director has instructed all state agencies – including those that handle education, law enforcement and highway safety – to plan for a 10 percent across-the-board cut. If the tax cuts aren’t repealed, Kansas’s already cash-strapped schools and universities are expected to lose over a billion dollars in funding in the next five years.
And for what? Businesses aren’t flocking to Kansas in anticipation of a lower marginal tax rate. Since May, the state has added only about 2,000 jobs. In the same span of time, Oklahoma – which rejected the same proposal – added nearly 12 times as many.
The only people who appear to benefit from this version of tax reform are the wealthy. In North Carolina, the plan proposed in the Laffer study would raise taxes by $500 on families earning $24,000 annually while cutting taxes by $42,000 for households earning more than $900,000. These policies may be a bargain if you’re Art Pope or Pat McCrory (or even a university professor like me). However, they represent a potentially devastating blow to working families. And, in the long run, the cuts to basic services they would require could leave everyone in North Carolina worse off.
Instead of a one-size-fits-all approach to tax reform, we need pragmatic policies that fit our state’s needs and goals. We need reform that provides economic opportunity without forcing middle-and working-class families to shoulder all of the burden. We won’t get all that from a cookie cutter.
A proposal tailored to our needs is the only way to ensure that we can continue to support the quality of life that makes me so proud to call North Carolina my home.
Nicholas Carnes as an Assistant Professor of Public Policy and a Faculty Affiliate in the DeWitt Wallace Center for Media & Democracy and the Duke Population Research Institute. This commentary was originally published in The News & Observer.