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North Carolina’s fiscal future: needy Alabama?

Flanked by members of both houses, Speaker of the House Tim Moore, left, and Senate Pro-tem Phil Berger unveiled their budget agreement at the State Legislature in Raleigh on Sept. 14.
Flanked by members of both houses, Speaker of the House Tim Moore, left, and Senate Pro-tem Phil Berger unveiled their budget agreement at the State Legislature in Raleigh on Sept. 14. cseward@newsobserver.com

Now that our Republican-controlled General Assembly has unveiled its new budget featuring substantial income tax cuts, the state’s GOP leaders are receiving hearty congratulations from fellow parishioners in the Church of Trickle-Down Economics.

The latest attaboy comes courtesy of Forbes magazine, where Patrick Gleason, director of state affairs for Grover Norquist’s Americans for Tax Reform, described the ongoing re-engineering of North Carolina’s finances as a national model of prudent tax reform.

Gleason compared our falling income and corporate taxes to the situation in Alabama, where cigarette, nursing home and prescription drug taxes are going up, and Pennsylvania, where an ugly budget brawl continues.

It’s easy to see how Norquist and Co. would find fault with a swing state like Pennsylvania. But deep-red Alabama? Residents there face the lowest state and local tax collections per capita in the country, according to a report this year from the Tax Foundation.

“More Jobs. Less Government. No New Taxes.” That’s the slogan Alabama Gov. Robert Bentley campaigned for re-election under in 2014. It could double as the state motto.

But years of low taxes haven’t miraculously given birth to new jobs and income. Like Kansas, now the poster-child for the dangers of over-exuberant tax cutting, Alabama found itself staring at a budget shortfall.

It wasn’t Bentley’s first. The state also dealt with a major shortfall in 2012, one leaders “solved” by taking $437 million from a state trust fund to prop up their ailing finances.

With that revenue drying up this year, it was clear the state needed to either raise taxes or make deep cuts in basic government services – as much as 19 percent from the courts system and 24 percent from Medicaid, for instance.

Bentley proposed $541 million in new taxes, but his GOP brethren in the Alabama legislature fought him, and they eventually settled on an $80 million infusion from the state’s education trust fund and an $86 million tax hike, mainly from higher taxes on cigarettes, nursing homes and prescription drugs.

So, what we have here is a picture of where North Carolina could well find itself several years from now. The new budget’s lower personal taxes will drain at least $700 million a year from the state’s coffers once they fully kick in in 2017, according to legislative estimates. The expanded sales taxes on auto repairs and other such services will initially put in an additional $160 million, not nearly enough to close the gap.

As Republican lawmakers correctly note, this is, overall, a tax relief plan – one that will force future legislatures and governors to face the choice Alabama faced this year: Do we cut services? Or do we raise taxes?

Surely Phil Berger and Co. would opt for Door No. 1. Lawmakers’ “tax reform” plan is really a “government shrinkage” plan. They’ve conveniently structured it so we get the ice cream now – “Free Tax Cuts for Everyone!” – and the stomachaches later.

As we noted last year, North Carolina should aim a lot higher than states such as Alabama.

For now, the N.C. GOP is enjoying its moment in the tax-cutting spotlight. Let’s hope for all of our sakes that North Carolina’s economy, unlike Alabama’s or Kansas’s, can reward their blind faith in the Laffer Curve. Eric Frazier

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