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Cutting income taxes would do nothing to create N.C. jobs

By Alexandra Sirota
Special to the Observer

North Carolina needs to do more to make sure our economy can compete with neighboring states by attracting people and businesses, but the deep corporate and personal income tax cuts that policymakers are debating will only jeopardize our state’s competitive advantage.

North Carolina is known for its high quality public universities, the tremendous research and innovation produced in the Research Triangle Park, and achievements in early childhood education, public health and safe communities. These are the things that bring people to our state and encourage entrepreneurs to start and grow businesses.

Deep income tax cuts proposed by state lawmakers put all of these vital investments at risk, with no credible evidence that it will lead to more jobs. To make things worse, struggling families will be the hardest hit.

Because North Carolina must balance its budget each year, the state will not reap any short-term benefits from personal or corporate tax cuts. That’s because every dollar given away in a tax cut has to be made up for with a tax increase on another business or individual or with a cut to state services, such as education, transportation and public safety. So, at best, any benefit from a tax cut will be cancelled out dollar for dollar, and result in no net economic gain in the short-term. If lawmakers cut investments in these services, all of which have been shown to boost the economy over the long haul, then North Carolina risks compromising its future.

These proposals won’t create more jobs. Business owners hire people when demand grows for what the business sells. Cutting a business’s taxes will do nothing to increase consumer demand. Businesses across the U.S. today are sitting on huge profits and not expanding. It has nothing to do with taxes and everything to do with lack of demand. The other side of that coin is this: When demand increases, businesses will hire – whether they get a tax cut or not.

But these proposals won’t spark demand, because by eliminating the personal and corporate income tax, policymakers would likely have to raise taxes on middle- and low-income North Carolinians to pay for it. Middle- and low-income North Carolinians already pay a higher percent of their income in state and local taxes than the wealthiest residents do. The gap would grow with the proposed tax cuts, leaving most North Carolinians with even less money to spend in local businesses.

The governor says North Carolina needs to update its brand to compete with other states, but that is dead wrong. We are known for our world-class universities, cutting-edge research and environmental assets. I can’t think of a better brand than this.

Time and again surveys and studies have found that a well-educated, highly productive workforce, access to markets and suppliers, a sound transportation system, and a high quality of life for employees are more important to business success than state taxes.

In North Carolina, we have a strong history of investing in these things, and we shouldn’t turn our backs on this strategy that has worked so well for generations by cutting personal and corporate income taxes.

Alexandra Sirota is director of the N.C. Budget and Tax Center.
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