Politics & Policy

North Carolina’s Tax Cuts Are a Model for the Nation

Downtown Raleigh, N.C. (Photo: Sean Pavone/Dreamstime)
By cutting taxes and restraining spending, my state jumpstarted its economy. Others should follow suit.

Recently, the Washington Post offered readers a “peek into a world after a massive tax cut” — a visit to Alamance County, in my home state of North Carolina, where reporter Todd C. Frankel rode along with factory owner Eric Henry.

Henry, whose T-shirt-manufacturing company “almost went belly-up in the in the mid-1990s,” said he’s been doing well in recent years and his business is growing. This summer, he had his best production month ever and gave a bonus to his employees. But, he said, he didn’t know people who benefit from North Carolina’s tax cuts.

I’d say he should look in the mirror. The truth, somewhat obscured by the article’s anecdotes, is that millions of North Carolinians like Eric Henry and his workers have steady jobs and live in a more prosperous economy because of North Carolina’s tax cuts.

Just five short years ago, our economy was floundering and unemployment hovered around 10 percent. Since then, we’ve added 245,000 people to our labor force and the unemployment rate has been slashed almost in half. That’s a whole lot of folks who are better off now than they were then. And there’s no doubt that their improved fortunes are attributable to our tax cuts.

Since 2013, our corporate income-tax rate has dropped from 6.9 percent to just 3 percent — the lowest rate nationwide in states with a corporate tax. It will fall again to 2.5 percent in two years. Our personal income-tax rate, which was close to 8 percent, is now 5.5 percent and will drop to 5.25 percent in 2019, delivering $2.8 billion in tax relief to North Carolinians over the next five years. And the standard deduction, which has already doubled, will have more than tripled by 2019.

Because of these reforms, our state made the “most dramatic improvement” in the history of the Tax Foundation’s Business Tax Climate Index, jumping from No. 41 to No. 11 in just one year.

When North Carolina first embarked on its tax-cutting effort, naysayers warned that revenues would plummet and our state would face a budget crisis. Among them was Alexandra Sirota, director of the left-leaning North Carolina Budget and Tax Center, who predicted in 2013 that the cuts would “weaken North Carolina’s tax system and broader economy.” She also said they would “[jeopardize] our future by undermining the long-term ability of our state to maintain the building blocks of a strong economy.”

Happily, Ms. Sirota and others have been proven wrong.

Not only is business booming, but our state budget is in great shape as well.

In 2013, the year the tax cuts were passed, the American Legislative Exchange Council ranked North Carolina’s economic outlook No. 22 in the country. Today, we’re No. 3. Forbes says the Tar Heel state is the best in the country for business. And we were named the most competitive state in the nation by Site Selection magazine again this year, after tying with Texas last year and winning the award outright in 2015.

Not only is business booming, but our state budget is in great shape as well. Since the tax cuts passed, we’ve repeatedly experienced revenue and budget surpluses. Today’s rainy-day fund is at a record $1.8 billion and lawmakers recently boosted performance pay for North Carolina teachers.

That’s because the broad tax cuts were coupled with rollbacks in corporate-welfare giveaways and measures designed to restrain the growth of spending spending. Overall, spending will increase just 3 percent this fiscal year, which is below the 3.8 percent combined growth of inflation and population.

In other words, North Carolina legislators showed the nation how to successfully implement tax cuts that grow the economy without destroying the state budget. This is a sharp contrast to everyone’s favorite tax-cut boogeyman, Kansas. There, after the passage of dramatic tax cuts in 2012, total state spending increased almost every year. Between the budget years of 2010 and 2018, Kansas lawmakers increased expenditures by almost 25 percent, from $5.3 billion to $6.6 billion. And even in the face of declining revenues, the legislature failed to rein in spending. You don’t have to be an economist to understand how this would lead to a budget crisis.

It’s a shame, because the ingredients for economic success were there. The year Kansas enacted its tax cuts, more than 15,000 small businesses opened, the most the state had ever seen in such a short time. The following year, the state’s unemployment rate dropped from 5.5 percent to 4.9 percent. Over the same time period, its economic outlook jumped from 26th to eleventh in the ALEC rankings.

The Post’s article may have given readers “a peek” at our state. But a peek, by definition, isn’t a full picture. North Carolina’s economy is growing, prosperity and opportunity are expanding, and lives are getting better across the state. That’s what I see every day. It’s my hope that Washington will follow North Carolina’s blueprint, not Kansas’s folly, and couple historic tax cuts with efforts to restrain spending.

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