RALEIGH — North Carolina’s lingering employment woes provide plenty of evidence that the state cannot afford to extend job-killing temporary taxes. That’s the assessment of a John Locke Foundation expert.
“North Carolina’s official unemployment rate has topped 9 percent for nearly two full years, and the official rate extended into double-digit territory for 16 months,” said Dr. Roy Cordato, economist and JLF Vice President for Research and Resident Scholar. “The General Assembly’s top budget forecaster recently projected unemployment of 9 percent or more throughout 2011.”
“Those numbers don’t count the discouraged workers who aren’t looking for jobs, which means the real unemployment rate is much higher,” Cordato added. “It’s clear that the governor and new General Assembly leadership should rethink a tax policy that discourages business owners and entrepreneurs from creating new jobs.”
The N.C. Employment Security Commission’s latest report lists the state’s unemployment rate at 9.6 percent for October, down one-tenth of a percentage point from September’s adjusted rate of 9.7 percent. The state originally reported a 9.6 percent rate for September but adjusted that rate after the initial report issued Oct. 22.
The state’s official unemployment rate surpassed 9 percent in January 2009 and has not dipped below that threshold since that date. From February 2008 to September 2010, North Carolina’s unemployment rate exceeded the national average.
“Rather than accept 9 percent unemployment as some sort of ‘new normal,’ elected officials can take steps that would help encourage economic growth,” Cordato said. “Just as important, they should avoid action that would discourage growth. That means ignoring the entrenched state government interests who will push hard in the new year to extend temporary taxes on sales and income.”
Adopted in August 2009, a 1-cent statewide sales tax, along with an income-tax surcharge for individuals earning more than $60,000 and families with six-figure incomes, are slated to go away in the next year. “Advocates for various state programs will spend much of their energy in the coming months pleading with lawmakers to extend those taxes,” Cordato said. “But these so-called ‘temporary’ taxes help convince business owners and entrepreneurs that North Carolina is not a great place to add jobs.”
The Washington, D.C.-based Tax Foundation has recognized this problem, recently ranking North Carolina No. 41 in the nation for its business tax climate. “That’s a drop of two spots in the annual Tax Foundation ranking, so we’re now 10th-worst in the country — sitting alongside states such as New York, California, and New Jersey,” Cordato said. “The Tax Foundation indicated that increased sales taxes played the key role in hurting North Carolina’s ranking during the past year.”
Seasonally adjusted employment decreased in October by 5,270 workers to a total of 4.04 million, according to the ESC. Unemployment also decreased by more than 6,800 workers, with more than 427,000 workers now listed as unemployed. The state rate in October 2009 was 10.9 percent.
Gov. Beverly Perdue and the new Republican-led General Assembly could make plenty of policy changes that would help North Carolina compete more effectively for new business investment, Cordato said. The John Locke Foundation research staff highlights those policy changes in a new document dubbed The First 100 Days.
“We call for the General Assembly to repeal corporate welfare laws, repeal renewable-energy mandates, open the state budget process, and post state spending online,” Cordato said. “Those action items, along with the others in our 11-point plan, should top the new General Assembly’s priority list. All would improve North Carolina state government, and many would have direct positive impacts on the state’s economy.”
In the short term, allowing temporary tax increases to disappear is an easy first step, Cordato said. “This action requires little heavy lifting,” he said. “The temporary taxes are slated to disappear next summer with no action from the General Assembly.”
North Carolina’s situation offers a contrast to the current tax debate in Washington, D.C., Cordato said. “On Capitol Hill, we need Congress to act now to save tax cuts,” he explained. “Otherwise, tax hikes go into effect at the federal level next year. In North Carolina, the picture is a mirror image. This is a case in which doing nothing would represent positive action for the taxpayers, for the state’s business climate, and for our long-term job prospects.”