The “progressives” (code word for apologists of the ruling class) at NC Policy Watch posted this defense of the status quo in North Carolina’s struggling economy – still suffering from the fifth highest unemployment rate in the nation.
The article is long on thoughtless demagoguery and short on economic understanding, and attempts to argue against state tax reform that would eliminate the state’s personal and corporate income taxes and shift the tax structure to a broader based, consumption-focused tax; something I wrote about recently. Following are a few excerpts (with my comments added in italics):
Such a tax swap – eliminating the state’s personal and corporate income taxes and greatly increasing the sales tax – has been suggested by legislators who claim it will solve a problem that actually doesn’t exist.
By now, most people probably have heard the discredited contention that almost half of Americans pay no taxes.
It is not only misguided to do away with North Carolina’s income tax on the grounds that too many people pay too little tax, it’s also bad for the state in a number of ways. (Nobody is arguing for NC tax reform “on the grounds that too many people pay too little tax.” This is a typical tactic of the “progressives,” create a non-existent straw man argument and attack the straw man rather than address your opponent’s actual arguments. Folks like Civitas are advocating for tax reform on the grounds that too few people have a job.)
And income tax revenue tends to grow as the economy grows, which means the state can make crucial investments in education, and other building blocks of a strong economy. (Translation: politicians have more of our money to spend as they please, building up permanent obligations with temporary revenue streams) And it can put money aside for the next economic downturn.(Except they never do, as the permanently underfunded Rainy Day Fund demonstrates.)
In contrast, relying only on consumption taxes would make our revenue system less stable. When the next downturn hits and consumer spending plummets, North Carolina’s revenue would plummet right along with it with no other tax to counter-balance its decline– meaning even harsher cuts to education, health care, and public safety than we’ve seen in the last few years. (So very wrong. Research shows that consumption-based taxes are much less volatile than income taxes during boom/bust swings. Also, consumer spending doesn’t “plummet” during recessions, net private investment does. That’s a myth I’ve addressed many times, including here and here)
The supposed reason for getting rid of the income tax (that it would help the state’s economy) is false. Serious research overwhelmingly confirms that income tax rates have no impact on a state’s overall economic wellbeing. And in fact, a recent study by the Congressional Research Service, found that after a review of the 65-year reduction in the top income tax rates at the federal level that there has been little to no associated effect on savings, investments and productivity growth. (Why use a study about federal taxes when discussing state tax impact on state economic growth? This is bizarre. Perhaps why Policy Watch does this is because they know the research on state taxes overwhelmingly shows that taxes do matter, and that income taxes most negatively impact state economic growth, as I discussed previously.)
In the end, the goal for a modern revenue system must be to bring in the resources needed to make the investments that create jobs and build the economy – and to do so fairly. We all benefit when our schools excel at educating our children, when roads connect businesses to consumers and public transportation connects workers to jobs. (Except when there are no jobs.) Our economy is strengthened when North Carolinians struggling in difficult economic times can still access preventive health care and get retrained for their next job. (At taxpayer expense, of course) These are investments that help families climb into and stay in the middle class. (No, the improvement in economic conditions is only made possible by an increase in the amount of accumulated capital, not politicized government spending). Yes, everyone pays taxes and everyone benefits from the investments that taxes make possible. (Government does not “invest” money, they spend other people’s money.)
To clarify the lie that is the term “government investment,” a quote from this article is quite instructive:
Private investment means putting your own money at risk in anticipation of realizing a gain later; public “investment” means taking and spending someone else’s money to support your idea of how you think they should live, or to satisfy the special interests that help get you reelected. Private investment requires putting off spending today so that you may (hopefully) earn more in the future; public “investment” is all about spending today.