RALEIGH – The 2005 session of the North Carolina General Assembly began Wednesday with the reelection of Senate leader Marc Basnight and House Speaker Jim Black, with former House Co-Speaker Richard Morgan becoming Speaker Pro Tem. This leadership team promises to maintain the same close collaboration and future-oriented thinking that has been so successful in recent years in addressing North Carolina’s major fiscal and policy challenges.
OK, that’s Jones Street Myth No. 1. In reality, North Carolina has addressed few of its fiscal and policy challenges in recent years. Basnight himself admitted to the Winston-Salem Journal that lawmakers had not closed a structural deficit in the state budget despite years of talk. “No, we have not,” he said. “We’ve borrowed money and taken money from well-established (trust) funds…. We’ve robbed Peter to pay Paul.”
Exactly. Basnight, enjoying a 29-21 margin in the Senate as he begins his seventh term as President Pro Tem, can afford a snippet of candor here. Others apparently can’t.
In an attempt to maintain this spirit of candor, here are a couple of other Jones Street Myths that I would urge folks to avoid perpetuating through careless repetition:
• North Carolina is losing hundreds of millions of dollars because it doesn’t have a state-run lottery. This is false. Of the dollars that North Carolinians spend on out-of-state lottery tickets, about half return to North Carolina in the form of prizes. Another chunk is eaten up in administration. The real “revenue loss,” if you want to call it that, from North Carolina being the only state in our region sensible enough to avoid create a state gambling monopoly is probably around $80 million, far less than it would cost for us to set up and run our own (exploitative) game.
If what lottery supporters mean is that they could generate hundreds of millions of dollars in state revenue from a lottery, then, sure, that’s true. But we could generate the same fiscal impact in many other, cheaper ways, such as spending restraint (hooray) or even just regular tax hikes (boo).
• It’s time to shift more of the tax burden in North Carolina to “the wealthy.” You’ll hear this a lot when the time comes to ‘fix” the aforementioned deficit with taxes. The fallacy behind this notion of “shifting the tax burden to the wealthy” – presumably by closing more “corporate loopholes” or retaining and raising the state’s already-high tax rate on personal income – is that he who writes the check is the same one who bears the cost.
As Steve Entin of the Institute for Research on the Economics of Taxation ably discusses in a recent paper, pseudo-statistical tables purporting to show how different income groups are affected by tax changes are mostly exercises in public relations. Changes in taxation affect a host of economic decisions, such as where to work, invest, and shop. No model accurately captures them, which is why luxury taxes on yachts can be costly even if the collections are scant (because the wealthy will find something else to buy or do with their money that is less taxed, while boat manufacturers and their employees just lose).
A better assumption is that if North Carolina raises taxes on income or sales, there will be less income earned and fewer sales made. We’ll all share that cost to some extent.
So, there are three initial Jones Street Myths. Please send me nominations of any additional entries you’d like to see on the list. At Carolina Journal, customer service is our commitment to you.
Hood is president of the John Locke Foundation and publisher of Carolina Journal.