NC taxes and cognitive dissonance

So, Art Pope, NC’s very own version of the Koch brothers is now our state budget director.  Scary. But here’s the really scary part– apparently he’s the most sane in the room.  While the rest of the NC Republicans seem quite willing to create a massively regressive shift in taxes away from income tax towards more sales tax, Pope– of all people– has publicly come out saying this is a bad idea:

CHAPEL HILL — Gov. Pat McCrory’s budget director distanced the Republican chief executive from a proposal to eliminate income taxes in North Carolina and expressed his own “great concerns” with the concept being floated by leading GOP lawmakers.

Art Pope said the state’s current tax system is plagued by “holes and problems” – but the idea of abolishing personal and corporate income taxes by increasing the sales tax and levying the tax on dozens of duty-free services creates more concerns.

“Maybe if you were designing a tax code from scratch, you may want to look at a broad-based consumption tax,” Pope told a reporter roundtable at UNC-Chapel Hill’s journalism school Wednesday. “To go there from where we are now, I think, is very difficult to do and has lot of impracticalities.”

In particular, Pope cited a concern that the higher sales tax is “absolutely, no doubt” regressive, meaning it would hurt low-income taxpayers the hardest. He said it amounts to a gross income tax “without any regard to whether you are making any money.” And he worried about upsetting the current three-tier system of income, sales and properties taxes, calling it “fairly balanced.”
Wow!  Good for Pope.  If his goal is to make the heads of liberals across the state explode in massive cognitive dissonance, he’s onto something.   There’s probably no Republican in the state more vilified.
What’s especially interesting is that Pope’s very own Civitas Institute sponsored a report by the (laughable and discredited among mainstream economists) Arthur Laffer that argues essentially that all states should abandon their income tax.  Here’s its press release.  I actually went and briefly looked at the report itself and a couple of criticisms.  On a basic level it is just a horrid example of taking correlation to mean causation.  I mean horrid.  I would give it to undergrads in a methods course to tear apart.  All the inter-related factors involved in a state’s economic health and all we get is a series of bivariate tables.  Spurious correlation anyone?  Not to mention, plenty of liberal think-tanks have picked it apart and found all sorts of ways he is cherry-picking information.   I really liked this from the NC Budget and Tax Center:

The Civitas/Laffer plan is based on the flawed theory of supply-side economics and the Laffer Curve, which hold that reducing taxes actually increases revenue and boosts economic growth. The evidence is overwhelming that this theory does not yield the economic growth.

There is no evidence of a direct relationship between top tax rates and economic or job growth, according to a 2012 study by the Congressional Research Service.10 Moreover, states that Laffer himself has termed “high income tax states” turn out to have economic conditions comparable to, if not better than, states that do not have a personal income tax,
according to the Institute on Taxation and Economic Policy.11

In fact, states with low income tax rates actually have lower employment growth and lower median household income than Laffer’s designated high-tax states according to a recent study by Good Jobs First and the Iowa Policy Project.12 Furthermore, the industry composition in a state has a greater impact on a state’s economic performance. Similarly, an educated workforce, the presence of research centers like major universities and other knowledge factors boost per capita income growth. Accordingly, states will likely suffer in the long run because they lack the resources needed to invest in education and other building blocks of economic growth.

And even if it did unleash great economic growth– which is almost assuredly would not, you are still looking at a massive redistribution of wealth from poor to rich (from the same report):

chart

 

Also a nice study linked on the AFL-CIO website highlighting Laffer’s flawed and highly questionable methodology.

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About Steve Greene
Professor of Political Science at NC State http://faculty.chass.ncsu.edu/shgreene

One Response to NC taxes and cognitive dissonance

  1. Deborah Ferry says:

    In Arizona, the GOP often talks of abolishing income tax and relying on sales tax for revenue. I agree with you that this would result in a massive redistribution of income in favor of the wealthy. Funny, but the GOP only screams class warfare when the money is going to the poor.

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