RALEIGH – During last year’s political campaigns in North Carolina, much of the debate centered on how our state compared with our neighbors. Challengers typically argued that North Carolina wasn’t headed in the right direction, that its progress on a host of economic, fiscal, and social indicators had been arrested or even reversed. Republicans often tossed in complaints about the state’s escalating tax burden.

Incumbents, usually Democrats at the state level, responded that North Carolina had experienced difficulties but had turned the corner. They cited evidence that the state’s rate of job creation during 2004 had been among the highest in the country. They also downplayed the effect of tax increases since 2001, pointing out that the state remained below the national mean in average tax burden (taxes divided by personal income).

The campaigns may be over, but the debate continues. In the past couple of months, a number of business executives– some but not all assisted by Sen. Robert Pittenger, a Charlotte Republican – have written to state officials such as Gov. Mike Easley and Senate leader Marc Basnight. These business leaders are worried about the state’s competitiveness and say that taxes and regulations need to be reduced. Once again, the incumbents are offering an aggressive defense. They say that the economy is strong and taxes remain moderate.

So who’s right?

As with lots of fights about numbers, the answer depends in part on context and interpretation. Here’s my take on the fiscal and economic condition of North Carolina as of early 2005:

• Taxes. The latest analysis by the Tax Foundation found that North Carolina has the highest average state and local tax burden in the region. Believe it or not, a major dispute involves defining that region. Does the “Southeast” include Kentucky or Louisiana? If you think so, then NC ranks third in that region. Is the “South” limited only to the 11 states of the former Confederacy? If so, NC ranks 4th. If it includes the border states, then NC ranks 6th out of 15.

No matter how you look at it, our state’s average tax burden is high by regional standards. That’s not the worst news, however, since there is a big difference between the average tax burden and the marginal tax rate. The latter – the rate of tax on the next dollar earned – more directly affects decisions to work or invest. And North Carolina has some of the highest marginal tax rates on income not just in the South but in the nation. Even our combined, weighted tax rate on sales (7.05 percent) is higher than in all but 13 other states.

So why doesn’t North Carolina look worse than it does on national rankings? Because our property-tax rates, while rising, remain relatively low.

• Economy. Our state did better than many on the job-growth rate during much of 2004, though the rate has cooled off in recent months. But much of what appears to have occurred during 2004 is that we were adding back the private-sector jobs that other states, with stronger economic recoveries, had already added in 2002 or 2003. The longer-term trend is sobering: from January 2001 to February 2005, North Carolina experienced a net loss of 132,200 private-sector jobs, or about 4 percent. That’s the worst performance in the South. Our per-capita income growth of 8 percent was 3rd-worst in the South, and was barely positive when adjusted for inflation.

Well, I guess that will settle the debate once and for all.

Or not.

Hood is president of the John Locke Foundation.