- North Carolina’s economy has experienced ten consecutive quarters of per capita income growth equal to or greater than the national average, the best stretch in 20 years
- Even small gains in statewide average income add up to major impacts
- This latest positive news “is approaching a significant correlation” to the broad-based tax reforms of 2013
Reversing a trend, North Carolina has experienced ten consecutive quarters of per capita income growth equal to or greater than the national average, the latest data show.
In an email citing research he performed for the state legislature, Brent Lane, Director of the UNC Center for Competitive Economies at UNC-Chapel Hill, cited “10 straight quarters of per capita income growth at rates equal to or exceeding the U.S. rate.”
Beginning in the fourth quarter of 2013, that is “the best stretch of comparative income growth since 1996,” according to Lane.
In simpler terms, North Carolina has seen its best stretch of economic growth – as measured by per capita income – in two decades. This three-year trend represents a significant reversal of fortune for the Tar Heel State.
For two decades, North Carolina’s economy steadily fell further and further behind the national average in one of the most important economic indicators. After peaking in 1996-97 at 93 percent of the national per capita income (PCI) average, North Carolina’s growth lagged behind the national average, prompting the state’s PCI to fall to only 84.7 percent of the US average in 2013, according to Lane’s calculations.
The latest data available for 2016, however, show that North Carolina’s PCI has climbed to 85.5 percent of the national average, thanks to the 10 consecutive quarters of growth outpacing (or equaling) the US rate.
That’s less than a 1 percentage point increase, you may say. No big deal.
But context is everything. Given the massive size of North Carolina’s economy, that 0.8 percent gain represents an additional $4 billion in annual income for NC, according to Lane’s figures.
Readers should at this point recall that 2013 was the year North Carolina passed historic state tax reforms, reducing personal and corporate income taxes in what many hailed at the time as the largest tax cut in the state’s history. Also, in 2013 the state implemented unemployment insurance reforms which enabled North Carolina to pay back roughly $2.5 billion in debt to the federal government far earlier than the original payback plan, a move that has paid off with major tax relief for employers.
Looking at job numbers since 2013 also yields impressive results. From mid-2013 to the summer of 2016, job growth in North Carolina has outpaced regional and national averages, with the broadest measure of employment indicating one of the top ten strongest labor market improvements in the country during that time.
Income growth means middle-class households are better able to make ends meet, and lower-income households have an opportunity to make a better life for their families. Job growth means more opportunities – especially for low-skilled workers on the margins of employment.
Such broad-based gains underscore the importance of policies designed to increase incomes and encourage job growth statewide, compared to targeted economic development programs. “I am unequivocal in citing that the economic significance of even slight gains in relative PCI is superior to high-profile economic development ‘successes’ in achieving state-wide economic well-being improvements,” emphasized Lane.
State lawmakers would be wise to focus on continuing down the path of broad-based tax rate reductions and scrapping taxpayer subsidies and targeted tax credits for specific businesses. Such government handouts and privileges may buy nice headlines at ribbon-cutting ceremonies, but fail to generate the sort of widespread economic gains realized by tax cuts across the board.
To their credit, the state legislature delivered more tax cuts last year, dropping the income tax rate further while raising the standard deduction for all taxpayers, and ensuring the corporate tax rate continues to fall. The sales tax base was broadened slightly to include some services in order to better reflect the modern economy. On net, these tax changes are projected to save taxpayers nearly another $400 million over the biennium.
It may be premature to conclusively determine what role the 2013 tax reforms played in North Carolina’s improved fortunes these last few years, but the evidence is becoming more convincing by the quarter. As Lane put it: “Ten consecutive quarters is approaching a significant correlation to that policy shift, though evidence of causality is only anecdotal and impossible yet to parse out from a complicated combination of economic factors.”
As the positive economic news continues to roll in, it will become harder to deny that the 2013 tax cuts are living up to their promises.