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Tax cuts doing nothing to rouse NC’s sluggish economy

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As most everyone who knows the North Carolina legislature will tell you, regardless of their political allegiances, the coffee there is terrible. A cup of the bitter and watery stuff is more apt to produce irritability than alertness, a fact that becomes increasingly evident as a legislative session drags on.

Inadequate caffeine may be behind some of the head-scratching policy coming out of Raleigh in the last few years, but it’s also a metaphor for a tepid economic philosophy. The proposed state budget recently approved by the House of Representatives included a provision to lower the business franchise tax [2] and the same idea is currently working its way through the Senate. The proposal is yet another windfall for big corporations which have already seen their state and federal taxes slashed in recent years. These cuts have all been great for rich shareholders, but have left the rest of us on the outside looking in.

Architects of recent tax cuts in Raleigh and Washington, D.C., promised they would hit North Carolina’s economy like a triple espresso, providing a jolt to the system that would quickly spur a new economic day. Instead, we got a cup of anemic and reheated General Assembly brew. With legislative leaders now looking to give yet another handout to already rich companies, it’s worth reviewing how their previous economic prescriptions have let us down, and what everyone else has sacrificed along the way.

If tax cuts were the tonic their defenders claim, North Carolina would be energetically leaving nearby states behind. Instead, several of our neighbors in the Southeast have consistently outpaced North Carolina’s economic record in recent years. Since January of 2014, when the first round of tax cuts took effect, overall employment in North Carolina increased by 10.9 percent, well off the 12.6 percent growth recorded in South Carolina and Georgia’s 12.8 percent expansion over that same time span. In fact, North Carolina’s pace of growth has not even matched the average pace for the South Atlantic region as a whole.

Tax cuts have completely failed to revitalize manufacturing, an industry that helped to build North Carolina’s middle class and remains the lifeblood for many communities across our state. Manufacturing employment is up over the last few years, but the growth has been much slower than many other industries and well off the pace set by our friends down I-95 to the south. Since the beginning of 2014, both South Carolina and Georgia have added manufacturing jobs at roughly twice the rate that we have seen here in North Carolina, weak sauce for a state that was once the undisputed manufacturing powerhouse of the Southeast.

Maybe even worse, tax cuts have likely made the rural-urban economic divide even worse. North Carolina has become a tale of widely divergent economic fortunes, with a handful of cities growing rapidly while much of our state struggles to keep from going under. Nearly half of North Carolina’s counties still have fewer jobs than existed before the Great Recession, and 30 of our 100 counties have actually shed jobs in just the last year when the economy broadly has posted relatively steady growth. With corporate shareholders that often live outside North Carolina and big companies that mostly operate in urban wealth clusters making off with most of the tax cuts, this economic philosophy has tilted the economic playing field even more against small town and rural communities.

While the economic benefits of tax cuts are nearly impossible to discern, the harm of those policies can be seen everywhere. The cumulative effect of tax cuts passed since 2013 has been to drain $3.6 billion a year from public coffers, and that has real consequences for everyday North Carolinians. So if legislative leaders use budget constraints as an excuse for denying Medicaid coverage to 500,000 North Carolinians, or fail to address the crumbling state of many public schools, or compel teachers to dig into their own pockets for school supplies, or force rural parents to sit in McDonald’s parking lots so their children can get internet to do their homework – remember, all of this can be attributed to tax cuts that mostly went to rich people and already profitable companies.

We ought to feed a stronger brew into the economic veins of the state. We’ve tasted this coffee-flavored economic water for years and its past time for more robust stuff.

Dr. Patrick McHugh is a Senior Policy Analyst at the N.C. Budget & Tax Center.