In NC, as in Kansas, trickle-down tax cuts are just a trick

Monday, April 17, 2017
The News and Observer

"It’s tax week. This is when we all scramble to file our taxes and pay our fair share. These tax dollars fund the essential public goods and services that we expect of our government. Things like public schools, the brick and mortar of our democracy, are made possible by our tax dollars. We all know the tax system is complex (and unnecessarily so), but we must demand our legislatures ensure a fair and equitable tax system in this state. The problem is, Republicans have changed the rules of the game, and they’re at it again with Senate Bill 525.

The legislature has cut individual and corporate income taxes multiple times in recent memory, rigging the system to benefit the wealthy few and starving the state of essential funds to support a well-functioning and prosperous North Carolina. The plan would slash the state’s flat personal tax rate from 5.499 percent to 5.35 percent, and further reduce the corporate tax rate, already the lowest in the country, from 3 percent to 2.5 percent by 2019. To get families on board, proponents use the misleading label of a “middle-class tax cut” and have also altered the child tax deductions.

The Republicans logic follows what we call “trickle down economics.” The idea is that tax cuts, especially those favoring corporations and the rich, or those most able to pay, will stimulate the economy. After all, these folks are the job creators. If we only lower taxes more, and more, and then a little bit more, the jobs will come. The economy will boom, and businesses will flock to the state.

The problem? The theory is dead wrong. Thankfully, we don’t need to argue about economic theory to get a taste of the truth behind this backward logic, rather we can look to our friends in Kansas. In 2012, Republican Gov.Sam Brownback was persuaded to engage in significant tax cuts in the state. The governor told voters these cuts would “be like a shot of adrenaline into the heart of the Kansas economy.” The result? The cuts led to a massive hole in the state’s budget, bond rating downgrades, delayed infrastructure projects and a drop in employment growth compared both to the nation and to surrounding states. Its neighbors, who didn’t cut taxes, are doing just fine, while Kansas is on the ropes.

Cutting taxes isn’t going to lead to a booming economy. We’ve looked at the data, and we know there is no correlation between the top tax rate and investment, wage growth, employment, productivity or a host of other variables that capture the well-being of the economy. The data are spot on, but the theory is flat out lies.

Let’s be clear, we can create a prosperous and inclusive North Carolina. The poverty, inequality and joblessness we face in our state, and across the nation at large, are policy choices. These economic injustices are not concrete rules of the game, but rather they follow from a rigged system put in place by our legislature.

To build a stronger economy we need to fund our government, and ensure that those most able to pay, put forth their fair share. For one, we need to reinstate a progressive income tax. Second, we must raise the corporate income tax, not cut. Businesses don’t locate based on the tax rate, they locate where they can attract a highly educated workforce that can live in a desirable location. With the proper funding and political will, we can support an economy and North Carolina that works for all."

Mark Paul is a postdoctoral associate at the Samuel DuBois Cook Center on Social Equity. Read the full opinion piece here