Opponents of tax reduction balk at North Carolina’s historic tax reform as an example that pro-growth tax policies only lead to the bleeding of essential state services. They are wrong. Since 2013, an economic policy agenda reducing tax rates, regulations, and controlling the growth of spending has been advanced in North Carolina. In the process, North Carolina “began changing the way the state budgeted its dollars, funded its roads, delivered education, and administered public assistance.”
The North Carolina story is being watched by all sides of the political spectrum. “Most conservatives here [North Carolina] and around the country cheered. Progressives fought, fumed, and forecast doom,” noted John Hood, Chairman of the John Locke Foundation, regarding the policy reforms enacted in North Carolina.
North Carolina has become the gold standard example for states to follow in enacting meaningful tax reform. Tax reform and relief have lowered both the individual and corporate income taxes and those tax cuts have already “put $5 billion back into the economy,” and an estimated $10 billion by 2022.
The impact of tax reform has benefited taxpayers across the board in North Carolina as explained by Becki Gray, who serves as Senior Vice President of the John Locke Foundation:
All North Carolinians pay a lower personal income tax, businesses pay less, the sales tax rate is lower, and many taxes have been eliminated altogether. The zero-tax bracket has gone from $11,000 to $20,000, benefiting our lower income neighbors the most and removing the tax burden entirely for about 150,000 taxpayers.
Policymakers in North Carolina understand reducing tax rates must be accompanied by spending restraint. “Tax cuts don’t work when growth of government is out of control,” stated Becki Gray. Policymakers have been able to control the growth rate of state spending, while avoiding budget deficits and preparing for future economic downturns by building reserves. North Carolina’s economy is growing at an average of 2.5 percent, which is the “13th fastest growth rate in the nation.”
Progressives often argue that tax cuts will take away from vital government services such as education, but overall tax reform has been positive for education. “North Carolina ranked 8th in the nation when it came to the ratio between student performance on independent tests and per-pupil expenditures,” stated John Hood in referencing a U.S. Chamber of Commerce study. Becki Gray notes that teacher salaries with benefits average $64,000 per year and families have more opportunities for educational options because of school choice expansion.
The conservative pro-growth economic policies of reducing tax rates, alleviating the regulatory burden, and controlling spending is a successful policy for North Carolina. “Lower taxes, limited government, paying down debt, building reserves, reducing barriers, and smarter investments have paid off,” argued Gray.
What can Iowa learn from North Carolina? First, even though Iowa and North Carolina are two different states, it does not mean that limited government principles will not work for Iowa. Progressives are using scare tactics and constantly arguing that tax reform and relief in Iowa will end up resulting in budget deficits and austerity-style cuts to essential services. Iowa policymakers can avoid this situation by controlling the growth of state spending. North Carolina has proven that a state can lower its tax rates and still effectively fund the priorities of government.
Second, North Carolina’s example shows policymakers that the best way to create economic growth and opportunity is by lowering the tax and regulatory burden. Progressives often argue that “investments” are needed to create economic growth, but states that have high rates of taxation, regulation, and spending are only “investing” in bankruptcy. Iowa only needs to study the failed progressive policies in Connecticut, Illinois, and California to understand what happens when a state follows a policy of high taxation, regulation, and spending. Connecticut, for example, has raised taxes three times and the state is still in fiscal turmoil.
Finally, and perhaps the most important lesson from North Carolina, is the fact that freedom and liberty are the best paths to prosperity and opportunity. Becki Gray credits the pro-growth policies, which “have led to a healthy economy offering more opportunity, more jobs, more independence from government interference.”
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