The headlines yesterday were dominated by Republicans’ self-proclaimed victories: paying off the state’s Unemployment Insurance debt to the federal government, and new revenue projections indicating a $400 million surplus, rather than a feared $270 million shortfall.
The GOP, of course, immediately claimed vindication—happy days are here again, etc. Gov. Pat McCrory (R-Duke Energy) blasted out an email to his supporters—asking for money, as you do when you’re a politician running for reelection, but also declaring that it was his pro-tax cuts, pro-corporation, pro-fucking-the-poor policies that have pushed the state in the right direction:
Want to know the difference between North Carolina now versus under previous Democrat leadership?
This week, thanks to a roaring economy, a fiscally responsible budget and tax cuts that put more money back in the pockets of hard-working North Carolinians, I was proud to announce that North Carolina is projected to have a $400 million budget surplus this year.
A $400 million budget surplus! That’s in stark contrast to 2009, when Governor Perdue was announcing a near $2 billion budget deficit! We are just getting started in North Carolina, but we need help from people like you to keep our momentum going.
Gee, what could have been happening in 2009 that led to a deficit? It’s not like the entire world economy was cratering back then, a tailspin that started on Wall Street and spread like wildfire across the country and globe, nearly bankrupting entire nations and forcing the federal government to take extraordinary actions not seen since FDR, right?
Nope. It was Gov. Perdue’s fault. Glad we got that sorted.
The problem isn’t so much that you have state politicians claiming credit for an improving national economy that they had basically nothing to do with—that’s what politicians do, and you can’t expect the North Carolina variety to behave differently. The problem comes when you start to believe your own bullshit. If you assume that tax cuts skewed to the rich and spending cuts that hurt the poor have led to prosperity, and you want more prosperity, what are going to do?
MORE TAX CUTS!
An increase in state revenue collections is likely to trigger new cuts in the state’s corporate income tax rate, beginning with the 2016 calendar year, officials said Wednesday.
The latest forecast shows state revenue growing to levels that would beat targets written into state law — one feature of the overhauled tax code that Republican legislators approved in 2013.
“If those triggers do in fact meet the goals that we set forth, then we will follow through on that promise,” Gov. Pat McCrory said Wednesday.
Republicans have said cutting the corporate income tax rate has been — and will remain — an important tool for attracting businesses and improving the state’s employment picture.
The 2013 overhaul trimmed the corporate income tax rate from 6.9 percent to 6 percent for 2014.
It was reduced again to 5 percent for 2015.
I will note here that they’re giddy about reducing the corporate tax rate—which benefits the fat cats to whom the N.C. GOP is so clearly devoted—and not the individual tax rate, which was already flattened so as to benefit those fat cats at the expense of everyone else, in the same way that paying off the UI debt early helps big corporations pay less into the unemployment fund, while the unemployed, particularly the long-term unemployed, got royally screwed; North Carolina’s unemployment benefits are among the weakest in the country.
Per the Charlotte Observer:
The returns are in. And the numbers don’t point to an expanding economy as the main cause of the huge swing from deficit projections to surplus. Instead, the memo noted that tax refunds dropped by 57 percent this year (not the 35 percent predicted). It was by far the biggest drop-off in 25 years.
Personal income tax collections surged, giving the state $375 million more than the staff expected. Some of that came from bigger collections in small business income. No surprise there, since tax reform killed the $50,000 business income exemption such establishments enjoyed.
Indeed, contrary to McCrory et al.’s proclamations about tax relief and the like, many small businesses and lower- and middle-class people saw their state tax bills go up, as lawmakers got rid of popular exemptions. As I previously reported, in a recent survey 60 percent of state voters said their taxes went up this year. Only 8 percent said theirs went down. (But those 8 percent are the important ones.)
“The fact that there is a revenue surplus doesn’t mean we have the resources to make sure families and the economy get back on track,” Alexandra Sirota, a policy analyst at the N.C. Budget & Tax Center—which, while left-leaning, is generally better at math than Republicans in the General Assembly—told me yesterday. “There’s no causal link between tax cuts and this announcement of a revenue surplus.”
She elaborated in a blog post:
North Carolina’s economic recovery follows the national recovery. The April surprise in North Carolina is in line with the experience of other states during this period. The reality, however, is that the recovery has been very uneven, with many North Carolinians still waiting for their Carolina Comeback. There is no causal connection between the tax cuts passed in 2013 and growing revenue or the state’s recovering economy. Other states that didn’t cut taxes are also seeing bumps in their revenue as is noted in the memo released today. Given the preponderance of evidence that tax cuts don’t increase tax collections, the more likely explanation is that the economic recovery is strengthening.
(Related: The Laffer Curve, beloved by Republicans since Reagan, was long-ago debunked.)
The surplus, Sirota notes, is primarily driven by external factors—a rising national economy finally recovering from the Great Recession. People nationwide are doing better. Businesses are doing better. (If anything, North Carolina’s recovery has been fairly middling, compared to other states.) And that’s why more money is coming in.
The good news is, that surplus will probably stave off another round of draconian budget cuts. But it’s important to think about the counterfactual: What if the old tax regime were still in place?
Would the state’s economy and tax receipts have improved along with every other state’s? Probably.
Would the state tax system be more progressive, weighted toward those with seven-figure bank accounts? Absolutely.
Would the state have lots more money to invest in things like schools and transit? Yep.
Before these latest revenue projections, the BTC was estimating that the tax cuts would cost the state just south of a billion dollars. That estimate, Sirota says, will probably be revised downward a bit, though she’s not sure how far. The economy is growing faster than expected—but again, such is the case everywhere, even in states that didn’t respond to economic calamity by dropping to their knees and fellating the rich—and that’s a good thing. But if lawmakers see a causal link that doesn’t really exist, we could set ourselves up for failure, especially during the inevitable next downturn.
“They’re gonna move forward with more corporate income tax cuts,” Sirota says. “That’s a bad move for the state. What it does is lock in the [current] low level of spending.”