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Stephen Moore, a member of the supply-side triumvirate along with Art Laffer and Travis Brown, recently wrote a deeply misleading op-ed for The Wall Street Journal hailing North Carolina’s revenue surplus as vindication for supply-side economics and the state’s regressive tax policy. Don’t buy it.
Moore paints a rosy picture of the economic health of the Tarheel State, where lawmakers passed massive tax cuts for the wealthy in 2013 and are gearing up for another round this legislative session. The 2013 cuts prompted public outcry from citizens concerned about the drastic spending decreases needed to make the tax cuts possible, as well as the focus on slashing taxes – the estate, personal income and corporate income taxes –overwhelmingly paid by the well-off.
Worse, the 2013 cuts came on the heels of years of declining investment due to the national recession, a decline lawmakers have been slow to reverse. A 2014 Budget and Tax Center report found that spending in that year was still 6.6 percent below pre-recession levels, far from the norm in other states and for North Carolina in previous recessions.
Moore’s op-ed pretends that states can have massive, top-heavy tax cuts and still adequately meet their public obligations. But that’s only true if they’re in a race to the bottom. The state of public education funding in North Carolina is abysmal. The percentage of state dollars dedicated to K-12 education has gone down for the past 30 years; one study suggests that if public education had the same funding support now as in 1985, “schools would have an extra $1 billion a year in state money, which could [raise] teacher salaries [and presumably attract more talent] above the national average and could boost spending on items such as textbooks.” According to one NEA study, North Carolina ranked last nationally in teacher salary increases over the last decade. Dozens of school districts were forced to cut teaching positions or increase class sizes in 2013, a slow-burning economic blow that the state will contend with for years to come.
Moore also employs smoke and mirrors to tout North Carolina’s job and employment growth as a rebuttal to those who thought tax and spending cuts were the wrong policy. “The job market is vastly improved and people didn’t go hungry in the streets,” he reasons (it’s unclear how he knows this, but it’s worth pointing out that one in four North Carolina children are food-insecure). The truth is the number of employed North Carolinians is still below pre-recession levels and lags national averages. Despite an 18.5 percent increase in state domestic product since 2007, wages have actually fallen. And the economic recovery has been massively uneven along geographic, ethnic and socioeconomic lines.
Instead of acknowledging the challenges North Carolina faces, Moore crows about a one-time budget surplus. “Even with lower rates, tax revenues are up about 6% this year according to the state budget office,” he writes. “Gov. McCrory announced that the state has a budget surplus of $400 million while many other states are scrambling to fill gaps.”
Sounds great, right? Except that correlation does not imply causation, as every economist (including, presumably, Stephen Moore) knows. The $400 million is an unexpected windfall from business and capital gains growth – similar to revenue surpluses in at least ten other states, some of which did not cut taxes and at least one (California) which raised taxes. Even Art Pope, North Carolina’s former budget director and the architect of the 2013 cuts, doesn’t think the surplus stems from his tax policy changes.
Furthermore, plenty of other states that have embraced supply-side tax cuts ended up with massive deficits, Kansas and Louisiana being the prime examples. A recent CBPP report found that “Four of the five states that enacted the largest personal income tax cuts in the last few years have had slower job growth since enacting their cuts than the nation as a whole.”
Moore concedes the point on Kansas, most likely because he couldn’t get away with ignoring the biggest repudiation to his economic philosophy in years. But he obfuscates on the issue, noting that “Art Pope says one difference between the two states is that ‘we cut spending too. Kansas didn’t.’” And yet isn’t that the snake oil that Moore and his associates sell? That tax cuts will pay for themselves without spending cuts?
In Kansas, where lawmakers are still scrambling to close a $400 million shortfall, every supply-sider has counseled patience. The architect of the Kansas experiment, Art Laffer, said that the tax cuts there could take a decade to work. But not so in North Carolina, where two years and a one-time revenue boost are enough to declare “Mission Accomplished.”
The assertions of Moore and his compatriots in corporate welfare would be laughable were they not exceedingly dangerous. Even now, North Carolina lawmakers are preparing to waste the unexpected $400 million on additional tax cuts – on top of revenue triggers that will automatically drop the corporate rate from 6.9 to 4 percent by 2016. Senate Republicans have suggested further cutting personal income tax rates, calculating corporate income taxes on the basis of a single sales factor, and slashing the franchise tax by a third. These lawmakers claim their goal is to provide “balanced tax relief,” but don’t hold your breath. In 2013, the top five percent of taxpayers got 90 percent of the net tax cut, while the bottom 80 percent ended up paying more. Even after accounting for a sales tax base expansion, this new plan will lose $1 billion in state revenues. In other words, lawmakers are using a one-time surplus of $400 million to justify a billion dollar tax break for the wealthy. This is the state of fiscal conservatism.
So North Carolina, just as one should beware Greeks bearing gifts, you should be extra careful around Wall Street Journal editorial board members selling voodoo economics. Chances are they’re looking for a doll.