JLF head John Hood has a column out today on left-wing opposition to tax reform in North Carolina. A highlight:
Liberal critics argue that if the North Carolina General Assembly enacts a tax bill with dramatic reductions in marginal tax rates, a resulting lack of state spending on public schools and universities will deter rather than attract new business to the state. Their argument rests on the notion that, until now, North Carolina has bested lower-taxed states in recruiting top-flight corporations precisely because we were spending more taxpayer money.
The only value to this argument is that it makes the people who make it feel better about themselves. On the merits, the argument is incorrect in every way.
First of all, who says that North Carolina has been besting its competitors at attracting top-flight corporations? The residents of Virginia, Georgia, Florida, and Texas — all populous Southern states with more Fortune 500 company headquarters and lower jobless rates than North Carolina can boast — would beg to differ with this assertion.
Obviously there is more to building strong economies and attracting companies to a state than having low tax rates. But just as obviously, states that manage to deliver necessary government services at a lower cost have a leg up in the competition for business investment and job creation. Each of these Southern competitors imposes lower marginal tax rates on investment and corporate income than North Carolina does. They all have smaller, less costly governments, too. Even if the General Assembly were immediately to enact the Senate’s more-expansive tax bill, North Carolina’s overall tax burden would likely remain higher than that of Virginia, Georgia, Florida, and Texas — but at least those taxes would be raised with lower marginal rates on broader tax bases, a policy friendlier to economic growth than our current approach.
