When Gov. Pat McCrory took office in 2013, unemployment in North Carolina was nearly 9 percent and growth was sluggish at best. Coming off the worst recession in recent memory, the governor went to work and, along with the General Assembly, began to rebuild an atmosphere in North Carolina that would attract new businesses and drive economic growth.
Tax reform helped bring new jobs into the state and empowered existing companies to start hiring again. Prior to Gov. McCrory taking office, the state corporate tax code was complex and rigid, making it difficult for small business to grow and expand and discouraging new companies from moving to North Carolina. Gov. McCrory signed comprehensive tax reform into law in 2014, simplifying the tax structure and lowering personal and corporate income tax rates to their lowest levels since the 1930s. The impact of tax relief was reflected in the Tax Foundation’s annual ranking of business tax climates, when North Carolina leapfrogged 28 spots from the 44th to the 16th most favorable among the states.
The results of tax reform speak for themselves. North Carolina’s unemployment rate fell dramatically and is now 5.3 percent and job growth in the state remains above the national average. In the past 12 months more than 108,000 jobs were added and more and more companies are calling North Carolina home. State GDP has steadily gained strength. The latest economic forecast projects 6.1 percent growth from 2014 to 2015, the largest year-over-year growth in nearly a decade.
Many critics at the time carped that tax reform would gut the state budget, leading to program cuts and economic stagnation. In fact, just the opposite happened. The most recent budget forecast projects that North Carolina will enjoy a $400 million surplus, which will “trigger” a further one percent corporate tax rate reduction in 2016 and 2017.
There is no doubt that tax code modifications have meaningfully increased the state’s competitiveness and improved its business climate. But surpluses can be fleeting and the complete implications of tax reform remain unclear, particularly given a number of provisions that have not yet been fully phased in. To ensure the economic comeback continues, we should allow this round of tax reform to take shape before considering additional relief.
Rather than further tax cuts, I urge fiscal prudence. In the corporate world, we know that business is cyclical and that cash is king. Since the surplus is potentially a nonrecurring funding source, our priority must be to strengthen and enhance our “rainy day” reserves as a hedge against the next economic downturn and to preserve our position as one of only 10 states with a AAA bond rating from all three major ratings agencies.
We also need to continue to make good on promises to increase teacher pay, as well as fund other educational needs, including the university system. Nearly $300 million was invested to provide teachers a much-needed raise, but there is more to be done. Other tax changes, such as the renewable energy safe harbor, must be funded too. And we should make long-term capital investments in our roads, parks and ports – assets that will last for 50 years or more, financed at historically low interest rates.
Finally, while I’m not typically in favor of using public funds to pick business winners and losers with economic incentives, I understand that they are necessary to keep up with neighboring states and successfully play the economic development game. Refilling the incentive coffers to attract new employers would be wise.
The best way to spur job creation and to further improve North Carolina’s business climate is to temporarily hold the line on tax reform, don’t reduce corporate taxes further, but instead adopt the incentives package already proposed and budgeted. On the heels of sweeping tax relief, we owe it to N.C. taxpayers to allow the current reforms to play out before possibly charging ahead with more tax cuts.
Frank Dowd IV is Chairman of the Board of Charlotte Pipe and Foundry Company, a 114-year-old manufacturer of cast iron and plastic pipe and fittings headquartered in Charlotte.