When it comes to cutting the income tax, the biggest mistake North Carolina could make is to be too timid.
That’s the heart of comments economist and Wall Street Journal writer Stephen Moore made Wednesday night at a Civitas Institute discussion of tax reform. At the event, state Sen. Bob Rucho and Rep. David Lewis outlined how the legislation is shaping up.
“I would be as bold as possible,” Moore said of the tax reform drive. The income tax – which punishes hard work, production and success – stunts economic growth. “The state income tax is really a virus on your economy.”
“North Carolina has so much going for it,” he said. “You can do so much better than you are doing now.” In short, “There’s no reason North Carolina shouldn’t be the capital of the South.”
He noted that nationwide the states are growing more sharply conservative or liberal, in politics and economics. “The blue states have gotten bluer, the red states have gotten redder,” Moore said. “The red states are adopting Reaganomics, and the blue states are adopting Obamanomics.” Even as the Tar Heel State is looking at tax reform, liberal states such as California, Illinois and Massachusetts are raising their income taxes.
The harmful effects of the income tax are most clearly shown by the contrast between prospering states with no income tax – such as Texas – and the struggles of the states with the highest income taxes, such as California. “In the last five years, Texas has gained one million jobs,” Moore said. “In that time, California lost a million jobs.” (A Civitas study by the consulting firm Arduin, Laffer & Moore clearly shows the damage the tax does.)
In light of all that, North Carolina’s current high income tax rates “are craziness,” he said. “It’s like you’re putting a tariff on the goods and services in your state.”
And the regional competition will grow if North Carolina doesn’t act. At the Wall Street Journal, he said, “We predict the entire South … will become an income tax-free region. Standing still isn’t good enough. Your neighboring states are cutting taxes.”
If North Carolina joins in and does cut or eliminate income taxes, its future is bright, he said. “If you do half of what you can do, North Carolina can move from the state with the fifth-highest unemployment to one with the fifth lowest.”