RALEIGH – Let me see if I can follow the argument.
Last week, a new cartel of public and private spending lobbies, the Partnership for North Carolina’s Future, predicted that North Carolina would grow by four million residents over the next 30 years. That’s roughly the current population of South Carolina. Without vastly more bonded debt and a panoply of new taxes, the group warned, the result will be to “cost our state jobs, damage our economy, and adversely affect the livelihoods of families.”
So, millions of people will want to move to North Carolina because of its employment prospects and quality of life. But if we don’t jack up taxes and take on debt up to our eyeballs, there won’t be the available jobs or attractive quality of life, so the millions of new residents won’t materialize.
What?
Okay, let’s look at it a different way. State and local politicians defend corporate subsidies and targeted-tax incentives as creating jobs and expanding the tax base, thus making state and local budgets healthier. Yet many of these same politicians now claim that the four million new residents induced by North Carolina’s supposed economic-development coups won’t pay enough in taxes over the 30 years to finance the public infrastructure needed to accommodate them, so existing residents will have to pay higher taxes to make up the difference.
Nope, still not adding up.
If I’m a current North Carolinian listening to these claims, my head spinning from all the question-begging, it sure sounds like the best thing to do is: absolutely nothing. If the millions come, the result would be to raise my taxes. But if my taxes aren’t raised to build stuff, millions won’t come. So, as a taxpayer, I know what isn’t in my interest and how to avoid it.
In reality, the assumptions behind all this are, to use a technical term, screwy. Millions more people mean billions more in tax revenue to state and local coffers. To the extent that North Carolina relies on broad-based, straightforward means of raising necessary revenue – a properly constructed income tax for most expenditures, supplemented by property taxes at the local level and usage-based charges for particular government enterprises such as highways and water systems – there is no disconnect, no “gap” to be “made up.”
The only way to forecast a multi-billion-dollar gap is to forecast wildly excessive government spending over the next 30 years. The spending-lobby cartel is what it is. Many of them are fine people, with good intentions, who are citing often-legitimate infrastructure needs. But they represent spending interests, not taxpayers. They are, in a sense, tossing out opening bids for our business. If you want adequate schools, roads, and other infrastructure, they are saying, this is what we will charge you. Taxpayers should just say no. The price tag is too high. It is padded with wasteful spending, riddled with questionable assumptions, and simply layered on top of an existing, bloated set of state and local budgets. The overall state and local tax rate in North Carolina has grown significantly over the past couple of decades, and is more than adequate to finance basic services.
Just this year, according to JLF fiscal analyst Joe Coletti, the General Assembly is about to approve a state budget containing around $180 million in corporate welfare, $130 million in administrative bloat, $70 million in inappropriate subsidies for nonprofits and advocacy groups, and $270 million in excessive subsidies for state services consumed disproportionately by higher-income North Carolinians who don’t pay reasonable fees. In the transportation budget, Coletti estimated, there is an additional $310 million in annual expenditures for low-priority projects that would better be spent on high-value highway maintenance and expansion.
Setting aside for the moment the inefficient use of tax dollars in the state’s largest programs – public education and Medicaid – the above savings alone, if redirected to high-priority infrastructure needs, would represent $960 million in new investment in FY 2007-08. Do that every year for 30 years, and it comes out to about $29 billion in infrastructure investment without any new taxes (in nominal terms). Yes, the redirection might require fiscal adjustments – down in General Fund tax rates, up on Highway Fund tax rates, for example – but the net could be at least zero (and should, in fact, result in tax relief).
The spending-lobby cartel, call it the Coalition of the Billing, wants more money for its members, not tax reform. You can tell because real tax reform involves reducing complexity, flattening rates, and expanding the tax base. It means sticking with large-scale taxes on all consumed income, or on annual levies on all real property in a community. That’s not what the spending lobbies endorse. They talk about hiking taxes selectively on some residents but not others through such devices as real estate transfer taxes, impact fees, new-car taxes, and higher excises on cigarettes and alcohol.
The Coalition of the Billing favor these tax options precisely because they are not broad. They know that most North Carolinians don’t feel undertaxed, and yet worry about having adequate schools and roads. The idea is to promise the new government spending to all and try to stick the tax bill just to some. It’s not sound public policy, and it is about as far removed as you can get from leadership. Par for the course.
Hood is president of the John Locke Foundation.