Feeds:
Posts
Comments

Archive for the ‘North Carolina’ Category

In my column yesterday about state tax systems, I specifically noted that North Carolina has been making big improvements.

Not only did the state shift to a flat tax a few years ago, it recently voted to lower the rate from 5.25 percent to 3.99 percent.

Why did this happen?

The easy answer is that Republicans gained control of the state legislature. But that’s – at best – only a partial answer. After all, there are plenty of places where Republicans gain power and don’t enact good fiscal policy.

So maybe a better answer is that Reagan-style Republicans took control.

I suspect that’s a far more accurate answer, but I want to dig deeper and look at a policy reform that made the tax cuts possible.

Simply stated, North Carolina politicians embraced the Golden Rule of spending restraint.

And by controlling the growth of spending, they created fiscal maneuvering room for lower tax rates.

In a column for a North Carolina newspaper, John Hood, a board member of the John Locke Foundation (the state’s pro-market think tank) explains what happened.

…in North Carolina, conservative governance has actually reduced the size of state government and significantly improved its fiscal condition. …As a share of the economy, state spending has averaged about 5.8% over the past 45 years. It was well over 6% as recently as 2009. Since fiscally conservative Republicans won control of the General Assembly in 2010, however, budgets have gone up every year in dollar terms but have gone down almost every year when expressed as a share of GDP. That’s because legislative leaders have stuck to their commitment to keep annual spending growth at or below the combined rates of inflation and population growth. …That has, in turn, allowed legislators to rebuild the state’s savings reserves, pay off state debt, and finance several rounds of growth-enhancing tax cuts.

I fully agree that the goal should be to reduce state spending as a share of GDP, so kudos to North Carolina lawmakers.

By limiting annual spending increases, they have strengthened the private sector.

Here’s a chart, based on data from the National Association of State Budget Officers, showing what has happened to state spending since 2010. For background, a simple rule of thumb is that the “general fund” is money a state raises and spends while “total spending” includes that spending plus money that comes from Washington.

By the way, population has increased by about 1 percent annually in North Carolina, so per-capita state spending is only growing by about 1.5 percent per year.

All things considered, a very good job. Too bad Republicans in Washington don’t push for similar policies (to be fair, they did restrain spending during the Tea Party era).

I’ll close with a worrisome observation that North Carolina does not not have a TABOR-style constitutional spending limit.

So while it’s admirable that state lawmakers have restrained spending over the past decade, there are no guarantees that the Tarheel State will enjoy spending restraint in the future.

So North Carolina should copy Colorado and adopt something like TABOR. Or, they can demonstrate their worldliness by copying Switzerland’s “debt brake,” which is another constitutional provision to limit spending.

The goal – for the state and the nation – should be some sort of spending cap.

Read Full Post »

Motivated in part by an excellent graphic that I shared in 2016, I put together a five-column ranking of state personal income tax systems in 2018.

Given some changes that have since occurred, it’s time for a new version. The first two columns are self explanatory and columns 3 and 5 are based on whether the top tax rate on households is less than 5 percent (“Low Rate”) or more than 8 percent (“Class Warfare”).

Column 4, needless to say, is for states where the top tax rate in between 5-8 percent.

The good news is that the above table is better than the one I created in 2018. Thanks to tax competition between states, there have been some improvements in tax policy.

I recently wrote about Louisiana’s shift in the right direction.

Now we have some good news from the Tarheel state. The Wall Street Journal opined today about a new tax reform in North Carolina.

The deal phases out the state’s 2.5% corporate income tax between 2025 and 2031. …The deal also cuts the state’s flat 5.25% personal income tax rate in stages to 3.99% by July 1, 2027. …North Carolina ranks tenth on the Tax Foundation’s 2021 state business tax climate index, and these reforms will make it even more competitive. …North Carolina has an unreserved cash balance of $8.55 billion, and legislators are wisely returning some of it to taxpayers.

What’s especially noteworthy is that North Carolina has been moving in the right direction for almost 10 years.

P.S. Arizona almost moved from column 3 to column 5, but that big decline was averted.

P.P.S. There are efforts in Mississippi and Nebraska to get rid of state income taxes.

P.P.P.S. Kansas tried for a big improvement a few years ago, but ultimately settled for a modest improvement.

Read Full Post »

%d bloggers like this: