Editors note: On Friday, the New York Times followed up its editorial, The Decline of North Carolina, with an online debate over whether the legislatures controversial approaches to its budget are a model for other states. Here are excerpts of three perspectives:
Michael J. Boskin, a former chairman of the Presidents Council of Economic Advisers and an economics professor at Stanford:
The N.C. governor and legislature, after going through several iterations of tax reform bills, are now considering lowering personal and corporate income tax rates. I strongly support such a move. It will help make North Carolina a more business-friendly, competitive, pro-growth state. Think of it as an investment by the state in more and better jobs. While many factors affect a states economic performance, a stable, predictable, modest personal and corporate income tax rate, producing sufficient revenue to adequately fund necessary state functions with effective programs, is high on the list.
The Organization for Economic Co-operation and Development has concluded that Corporate income taxes are the most harmful to growth, followed by personal income taxes, then consumption taxes. State sales taxes are less harmful than income taxes. States with the best business tax climates have grown far more rapidly in the last decade than states with the worst, including my home state of California. North Carolina relies heavily on personal and corporate income taxes, relative to other states, and has the highest state personal income tax rate in the South but one of the nations lowest sales tax rates.
Budgets in states that rely heavily on progressive income taxes, like California, are extremely volatile, with revenue rising far more rapidly than income in the booms and collapsing in the busts. The roller-coaster budgeting has created the tragic situation of legislatures rapidly expanding more benefits to more people in the booms, only to be unable to continue essential services to vulnerable populations in the busts.
Jeanne Milliken Bonds, a public relations consultant and host of Plain Talk Politics:
The N.C. budget is held hostage by a plethora of unrelated legislation. One recent distraction was an anti-Shariah law wrapped in abortion restrictions. Distractions came earlier in the session via tax cuts posing as tax reform, takeovers of large municipal assets, public school vouchers and limitations on access to voting.
The fiscal year began July 1. North Carolina is operating under a continuing resolution while Republican supermajorities in the House and Senate fight out differences on the budget, tax reform and abortion restrictions. At this point, the public can only speculate about cuts to our highly ranked universities, our excellent public education system, our successful rural economic development programs and our efficient state departments.
Observers of the legislative process will not be shocked when the budget emerges with cuts to public education, along with new private school vouchers and the expansion of a separate system of charter schools. They will not be shocked by cuts to higher education. Earlier skirmishes focused on proposals to close some universities in the state system.
The state struggles with the fifth-highest unemployment rate in the U.S., especially in rural areas, contrasted with growth in and around cities. Republicans, elected in 2010 and 2012 after promising to create jobs, have spent little time on the topic. North Carolinians will need more time to sift through this sessions clutter of legislation, before citizens can pay attention to the state operating budget and its ramifications.
Eileen Norcross, senior research fellow at George Mason University:
North Carolinas proposed $20 billion budget proposes a few good measures for fiscal stability. It would double the states rainy day fund to $813 million. It would also put an end to the estate tax, a beneficial step for small businesses and families. Finally, the commitment to ending budget gimmicks and new debt issuance is promising.
But there is controversy surrounding the proposed budget. This week, N.C. lawmakers cut unemployment benefits by one-third. This disqualifies the state from receiving $700 million in federal funds for the long-term unemployed, affecting 170,000 people.
Although critics on the left are quick to fault the Republican lawmakers and governor behind this decision, the most important issue it highlights is not partisan: the continuing structural problems with the federal-state unemployment insurance program. Many state unemployment insurance trust funds financed through payroll taxes are depleted. The trust funds can be replenished by increasing the payroll tax, by expanding the taxable wage base or by cutting benefits. These are not good choices for a state like North Carolina, with an unemployment rate of 8.8 percent. Payroll tax increases are passed on to the work force in the form of less hiring or reduced wages.
Since 2008, the federal government has granted benefit extensions through the Emergency Unemployment Compensation program. States must pay that money back with interest, or face increases in federal payroll taxes. North Carolina has taken so much from this program that it now owes $2.5 billion. With two bad options higher payroll taxes or lower unemployment benefits lawmakers decided to avoid going further into debt by ending the extended benefits. The only permanent fix is an overhaul to the current approach to social insurance.
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