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Red Dawn Underway in North Carolina

reddawn

The Tar Heel State will soon undergo the kind of conservative tax reform that Republican leaders have been hankering after for quite some time. The FT reports on the details of the bill:

One person who has been closely following the North Carolina debate says a deal will include probably a lowering of the state corporate income tax from 6.9 per cent to 6 per cent in 2014 and 5 per cent in 2015, with triggers allowing further decreases if certain revenue targets are met. The individual income tax would fall from 7.75 to 5.75 per cent by 2015 .

The price tag would be partly covered by expanding the state’s sales tax base and would also be offset by the expected expiry in tax breaks for low-income working families, but could still end up costing about $450m in revenues each year.

The bill’s defenders claim the new reform wave will improve the state’s dismal 8.8 percent unemployment rate (third worst in the country) by making it more business friendly. Critics see the bill as, at best, leaving a gaping whole in the budget to fund basic services and, and worst, favoring the state’s rich at the expense of the poor.

North Carolina has become a key battleground for cherished GOP policies. Now that the House and Senate have agreed on significant cuts in corporate and individual income taxes, in addition to cuts in jobless benefits and eliminating the estate tax, the experiment can begin in earnest. Will these new policies attract business to North Carolina and spur much needed growth? Or will they hurt those most in need and doom the GOP to failure in future elections?

So far, Republican leaders haven’t come up with many pro-growth policies other than tax cuts, and their reform measures seem to divide electorates everywhere they appear (even in deep red states like Kansas and Louisiana). Unless and until North Carolina rebounds from its dismal economic situation as a result of these new reforms, many voters will be hardened in their impression that Republicans are singularly austerity-minded and favor the rich over the poor. The party can’t afford to lose favor among the electorate any more than it already has.

[Image of Gov. Pat McCrory courtesy of Wikimedia; background image courtesy of Shutterstock]

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  • Thirdsyphon

    Legislation like this is why 78% of North Carolinians support mandatory drug testing for the General Assembly.

    Ordinary NC citizens are going to feel the pinch of the higher sales taxes in this plan immediately, and every single day. Very few of them will be greatly mollified by the news that their belt-tightening was necessary in order to cut the state’s top marginal tax rates on corporations and the wealthy.

    Unless these policies work better than their proponents have any right to expect, I predict that North Carolina’s Republicans are heading for a very grim Election Day in November.

    • Corlyss

      I guess that means that you think Texas is a fiscal failure then?

      • Thirdsyphon

        Texas is surfing the wave of an oil and gas boom. Unless you’re going to claim that North Carolina will be able to conjure a Kuwaiti-sized oil reserve up from the ground with its new tax policies, I’m not sure how your argument here connects to much of anything.

        • f1b0nacc1

          Funny thing…most of the growth in the economy of Texas during the past decade is NOT oil and gas related, but rather in telecom and manufacturing. Yes, low energy prices help (why wouldn’t they), but they are policy results, not due to a hydrocarbon production boom.
          Look, there are perfectly viable arguments to be made in favor of higher taxes (I don’t buy them, but at least they are intellecutally defensible), but the fact is that if you tax job-creating enterprises, you are likely to end up with fewer jobs in the long run. Texas, for example, has very high sales taxes (a regressive tax), but has made the choice to impose these as a way to allow them to lighten the tax burden on businesses that generate more jobs. They got the jobs (which benefits everyone), at the cost of the higher sales taxes. One can reasonably disagree with the value of this approach, but it clearly works.
          I suggest that if the same result is obtained in NC, the GOP will prosper. If it isn’t, they won’t…

          • Thirdsyphon

            This approach clearly worked in Texas, and I still maintain that the oil and gas boom has more than a little bit to do with it. Petrochemicals aren’t just used for energy- they’re the source material for plastics which makes ready access to them a crucial advantage in manufacturing. Texas shares its low-tax, low-regulation, low-spending model with a lot of other red states (including, now, North Carolina). . . but not all of those states have prospered, so I don’t think that model of governance is what’s fueling all the growth in Texas. But we’ll soon enough see who’s right. North Carolina has given the rest of us a chance to see what Texas-style policies can accomplish in the absence of vast natural resources. And we all owe it to ourselves and to the people of North Carolina to watch and take note of the results.

          • f1b0nacc1

            Bravo…a reasonable and rational dissent!
            We can agree to disagree, and see what the future will bring…I look forward to seeing the results in 2-3 years…

        • Corlyss

          Texas, the home of no income tax, low corp. taxes, low business regulations, and a red hot economy, has been pulling in businesses from the blighted Blue states with dizzying speed. The have great job growth. Their position on taxes and regulation has something to do with their success. NC seeks to replicate it.

  • Corlyss

    “their reform measures seem to divide electorates everywhere they appear”

    As well they might. Everyone loves tax cuts. Nobody likes having subsidies taken away from them. The two approaches have to occur in tandem.

    • Thirdsyphon

      The problem is that they *do* occur in tandem, just not to the same people. The wealthy get to keep their subsidies for things like oil and gas and farming, while only the middle class and the poor are asked to sacrifice their own subsidies like food stamps and medicare. Meanwhile, in North Carolina, the “other side” of the bargain is that middle class and poor see their effective tax rate increase while the tax burden on the wealthy goes down.
      Is it any wonder that a significant fraction of voters might have a problem with this agenda?

      • Corlyss

        You’re looking only at the downside without considering any upside.

  • Thirdsyphon

    Incidentally, I love that on a day that includes this post, the headline “THIS IS WHAT CLASS WARFARE LOOKS LIKE” was reserved for a piece about how hard it’s getting to put on a spontaneous clambake in Southern California.

    • f1b0nacc1

      Considering that it was ultra-wealthy property owners manipulating regulations to keep working class proles off ‘their’ beaches, I think it was altogether appropriate…
      What, the only people who get to have clambakes in Southern CA are the rich?

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