RALEIGH – Are you smarter than a 5th grader? Not if you believe Gov. Beverly Perdue’s claim that the budget plan just passed by the North Carolina House would result in a mass layoff of 30,000 government employees.
You see, by 5th grade most students have mastered basic reading and math skills. As such, they would not have committed the egregious reading and math errors that led the governor and her staff to embarrass themselves with such a ridiculous claim.
Outside of the teacher union and allied interest groups, no one is willing to back Perdue up on her 30,000-layoff claim. The liberal North Carolina Justice Center won’t. The Raleigh News & Observer won’t. They and others recognize the critical differences between positions lost and people laid off (reading) and between gross and net (math).
Even Gov. Perdue recognized the differences when she announced her own budget plan earlier this year. She said at the time that her General Fund budget of $19.9 billion would result in the elimination of some 10,000 positions, but that most of these were either unfilled or could be accounted for by annual attrition. Around 3,000 employees would actually lose their jobs, the governor said, representing nearly a third of the total number of positions lost.
Similarly, Republican leaders of the NC House have cited fiscal staff estimates that their $19.3 billion General Fund plan would likely reduce government positions by about 18,000. Accounting for positions currently unfilled and projected attrition, however, the actual number of employees laid off wouldn’t be more than about 7,000, they said, or a little over a third of the total positions lost.
Sound familiar?
Now, to North Carolina voters this dispute may at first seem exceedingly odd. If both sides grant that their budget plans would further damage the state’s fragile economy, throwing thousands of additional people into the ranks of the jobless, why should either plan be adopted? Perdue’s spending cuts may result in fewer layoffs than the Republican plan, but surely the real goal should be to create jobs, not reduce them.
This is the position of many on the Left who would like to go even further than Perdue did on the revenue side – by not just extending most of the sales-tax hike enacted in 2009 but also raising additional revenue through higher income tax rates, a broader sales tax, or higher excise taxes on cigarettes and alcohol.
If you think that government is a magical job-creation machine, then you think it is perfectly reasonable to tax additional money out of the pockets of North Carolinians and put it through the machine.
But if you think that, you are officially not as smart as a 5th grader. As my own 5th grader, my youngest son Andrew, recently reported to me, his class has been studying natural science this year. They already understand the idea that, as the song goes, “nothing comes from nothing, nothing ever could.” Just as governments employ people when they spend money they take in taxes, households and businesses employ people when they spend the money they earn in the marketplace.
Only a simpleton could believe that taxes impose no costs on the economy, that they somehow appear like magic in the coffers of government without anyone noticing that the money is missing. Just as a matter of cash flow – discounting any incentive effects – money collected in taxes represents money that can’t be spent on private goods or services.
We can certainly debate the magnitude of the effect. Tomorrow Today JLF will release released a study that estimates the economic effects of the sales and income tax changes included in both the House budget and the earlier Perdue budget proposal. We welcome any constructive criticism of the model we use, or the submission of an alternative model for estimating the effect.
Here’s a hint, however. If your estimate of the number of jobs lost by extending the sales-tax hike for another two years is zero, then I’m afraid you are not smarter than a 5th grader.
Hood is president of the John Locke Foundation.