By Jeremy Cady
Proponents of a bill now moving through the Missouri legislature hold up North Carolina as the model of state tax reform done right. And they are absolutely correct. North Carolina provides a perfect example of pro-growth tax cuts and responsible spending. Unfortunately, in crafting the legislation, Missouri lawmakers didn’t actually emulate the Tar Heel State.
North Carolina’s economic comeback has played out like the final scenes of a feel-good sports movie.
Six years ago, Tar Heel State unemployment was near the double digits and growth was sluggish. The state’s economic outlook was mediocre—23rd in the country according to the American Legislative Exchange Council. And its business tax climate was terrible, coming in 44th in the nonpartisan Tax Foundation’s rankings.
So, North Carolina lawmakers rolled up their sleeves and set out to change their state’s economic trajectory. They cut personal income taxes from 8 to 5.5 percent—next year it will drop to 5.25—and they slashed the corporate tax rate by more than half, from 6.9 percent to just 3 percent, which is the lowest rate of any state with a corporate tax.
At the same time, North Carolina legislators broadened the sales tax base and eliminated special sales tax rates. They also reined in spending and got rid of many corporate welfare tax credits and deductions that benefitted a few well-connected businesses and special interests at the expense of everyone else.
The state has been on an upward swing ever since. Nearly 300,000 people have been added to the labor force. Unemployment remains below 5 percent. Forbes magazine says North Carolina is the best state for business. And last year the Tar Heel state was named the most competitive nationwide by Site Selection magazine.
North Carolina’s budget is also in tip-top condition, boasting a $1.8 billion rainy day fund. In fact, the state has had revenue and budget surpluses since the tax cuts and reforms were enacted and lawmakers have been able to increase teacher performance pay and fund other important efforts.
Are you hearing “Eye of the Tiger” or “We are the Champions” yet?
This is exactly the type of winning tax reform Missouri craves. We were 48th in the country in real GDP growth between 1997 and 2015. Our state’s economic performance is 41st and our economic outlook remains trapped near the middle of the pack, according to the American Legislative Exchange Council.
But invoking North Carolina without following the state’s tax reform and spending blueprint won’t deliver similar results.
Like North Carolina, the tax reform bill now making its way through the Missouri legislature cuts income tax rates, but that’s where the similarities end. Missouri lawmakers who drafted the bill focused on making it revenue neutral—shifting things around without delivering true reform to simplify the state’s tax code and reduce the overall burden.
To this end, legislators tacked on a gas tax hike that will make it more expensive for Missourians to get to work or run errands, and claw back a lot of the savings they get from the income tax cut. The bill would also increase corporate welfare tax credits—North Carolina eliminated many of them—and enter Missouri into an interstate online sales tax agreement that would allow other states to tax Missouri businesses.
It’s promising that many of our lawmakers are willing to tackle tax reform, but they shouldn’t just pay lip service to North Carolina’s tax cut success. They should replicate it.
The ultimate goal of tax reform should be to create a fairer, flatter and simpler tax code while allowing Show-Me State taxpayers to keep more of their hard-earned money. This bill falls short.
Jeremy Cady is the Missouri state director of Americans for Prosperity.
