April 16, 2009
RALEIGH — Continued bad unemployment news should prompt North Carolina lawmakers to rethink plans for raising taxes. That’s the assessment of a John Locke Foundation analyst with a Ph.D. in economics.
The N.C. Employment Security Commission’s latest report lists the state’s unemployment rate at 10.8 percent for March, up slightly from the February rate of 10.7 percent. North Carolina’s unemployment rate has climbed month-to-month for more than a year.
“The governor and General Assembly should come to grips with the fact that North Carolina is in a deep recession,” said economist Dr. Roy Cordato, JLF Vice President for Research and Resident Scholar. “Both Gov. Beverly Perdue and the N.C. Senate have proposed tax increases in their budget plans. Any tax increase only makes things worse. If we want to bring the unemployment rate down, then spending should be cut, the private sector should be expanded, and tax increases should be avoided.”
Instead of tax hikes, lawmakers should consider legitimate tax reform, Cordato said. “There are three basic principles of tax reform: simplicity, transparency, and neutrality,” he said. “Adopting a tax system based on those principles would have a major positive impact on the North Carolina economy.”
“Simplicity speaks for itself,” Cordato added. “If the average North Carolinian cannot do his or her own taxes in a couple of hours, then the tax code is too complicated. Second, the principle of transparency suggests that taxes should not be hidden from those who pay them. In other words, lawmakers ought to scrap taxes such as the corporate income tax that hides taxes from the consumers, workers, and corporate shareholders who pay the bill.”
Neutrality is “crucial” to tax reform, Cordato said. “To the extent possible, lawmakers should not use the tax system to influence people’s choices,” he explained. “Balancing the state budget on the backs of particular groups — such as smokers and drinkers of beer and wine — violates the economic principle of tax neutrality. Worse than that, it’s repulsive to anyone who values liberty.”
Seasonally adjusted employment decreased by 33,300 workers to a total of 4.06 million, according to the ESC. Unemployment increased by 2,400 workers, with more than 492,000 workers now listed as unemployed. The number of workers who were unemployed, but actively seeking work, remains at an all-time high, according to the ESC.
Unemployment has increased by more than 248,000 people in the past year. The unemployment rate has doubled in the past year. The state rate in March 2008 was 5.4 percent.
This new data should send a clear signal to state lawmakers as they haggle over the budget set to take effect July 1, Cordato said. “We know some legislative leaders are fond of quoting the first rule of holes: When you find yourself in one, stop digging,” he said. “Well, it’s time to recognize that double-digit unemployment — one of the worst unemployment rates in the country — offers a clear sign that we’re in a pretty big hole. This would be a great time to stop digging.”
“It’s time to put the brakes on tax increases and instead focus on policies that would allow entrepreneurs to make the investments that will put people back to work,” he added. “Real reform of the North Carolina tax system is one policy lawmakers ought to place at the top of their agenda.”