A “back of the envelope budget”

A “back of the envelope budget”

More irresponsible fiscal proposals from the far right

Whatever its flaws (and rest assured, there are a lot of them) one thing can be said for certain about what goes into crafting the state of North Carolina’s budget each year: It is a complex and challenging process. Even at its closed door worst, in which only a few powerful lawmakers pull almost all the strings, putting together a balanced $20 billion budget for an entire state is serious business. It takes months of work by a large team of skilled professionals. More importantly, each decision about what to fund and how to fund it can have real and serious implications for the everyday lives of thousands of North Carolinians.     

It was in recognition of these hard facts that, many years ago, visionaries at a group of national foundations came together to build and nurture a new program they called the “State Fiscal Analysis Initiative” or “SFAI.”  The premise of the SFAI (which, in North Carolina, helped spawn the incredibly successful and influential North Carolina Budget and Tax Center) was that when it comes to state budget and tax policy, it is not enough to simply offer a wish list of demands.

If advocates who care about state fiscal policy really want to have a meaningful and constructive long-term influence, it is essential that they offer credible and coherent policy options grounded in reality. Distilled down to its essence, this means that advocates and analysts shouldn’t propose major new tax cuts or spending initiatives without offering up at least some plausible plan for keeping the budget in balance. 

The right lobs another bomb

Unfortunately (of perhaps fortunately, depending upon one’s point of view) this is a lesson that the far right seems not to have learned. For decades now, the right has relied upon a few simplistic fiscal policy prescriptions for just about every situation. They go something like this: 1) “all taxes are bad”; 2) “just about all public spending is bad”; and 3) “all tax cuts are good and will pay for themselves via increased economic activity.”    

The latest case in point is a recent entry from the J.W. Pope Civitas Institute entitled “Dollars and Sense: A Budget and Taxation Blueprint for N.C.” The “blueprint” is an online publication that really isn’t a report but more of an extended blog post (it includes no footnotes, citations or even internet hyperlinks to back up any of its claims). It is apparently the latest and third of five. The previous two “cover” the topics of education and transportation, while two more are “coming soon” on healthcare and illegal immigration.

According to “Dollars and Sense,” North Carolina’s economy is, essentially, in the tank and well behind most other states. The reason for this, naturally, is the state’s overwhelming tax burden — particularly on businesses. Here are just a few of the notable findings/claims included in “Dollars and Sense”:

  • “State spending has increased 42 percent since 2001.”
  • North Carolina must lower its tax rate on all businesses in order to become even “regionally competitive.”
  • “Higher taxes lead to higher poverty rates” and “More government spending made poverty rates worse.”
  • North Carolina’s unemployment and personal income problems since 2000 are the result of high tax rates.
  • “Total state debt has more than doubled from 2001 to 2006.”

The primary solution to this dire set of circumstances, of course, is a series of broad, across-the-board tax cuts for businesses and individuals to the tune between $1 and 2 billion per year. This list includes:

  • Cutting the corporate profits tax by $330 million per year;
  • Reducing sales and gasoline taxes by more than $800 million per year;
  • Lowering individual income taxes on the wealthiest from 7.75% to 7% (the report blithely informs the reader that the estimated revenue impact is “unavailable,” but that “[the] revenue impact would be partially offset by dynamic economic growth.”

The authors of “Dollars and Sense” exhibit no great concern about the impact that such massive and unprecedented tax cuts would have on the state’s ability to pay for core services and offer no specific program cuts in education or health care (by far the largest parts of the General Fund budget). In four pithy paragraphs at the very end, they explain that, in effect, such cuts can be easily accommodated with a little “spending restraint.” Indeed, the authors recommend cementing their tax cut fantasies in place through the adoption of constitutional amendments modeled on Colorado’s disastrous spending cap experiment known as “TABOR.”

Reality Check

Even by the fairly modest standards for rigor and accuracy that one might associate with the world of blogs and online advocacy, “Dollars and Sense” is an especially weak and poorly sourced effort. Here are just a few of the more glaring shortcomings:

  • The alleged growth in state spending (and debt) this decade is, of course, unadjusted for inflation and population growth. While total state spending has risen the last couple of fiscal years, this was, for the most part, an effort to catch up with declines in state spending that had hampered the provision of core services during the early-decade economic downturn. As a 2005 Budget and Tax Center report demonstrated, when adjusted for inflation, North Carolina’s per capita General Fund spending actually declined from 2000 to 2005.
  • The notion that North Carolina must cut business taxes in order to become “even regionally competitive,” is patently absurd. As NC Policy Watch has reported on numerous occasions, North Carolina has been consistently rated by an array of business journals as having the most business-friendly environment for new and relocating businesses in the entire country. According to a presentation to the General Assembly last month by the national accounting firm Ernst & Young, North Carolina’s business taxes are the lowest in the southeast and among the lowest in the nation when measured as a percentage of the state’s economic activity. In keeping with this reality, North Carolina’s early 21st Century economic struggles are clearly primarily attributable to the collapse of its industrial base in textiles, furniture and tobacco. No one can seriously argue that this restructuring had anything to do with the comparative tax rates of North Carolina and, say, China or Indonesia.
  • The contention that high poverty rates accompany more government spending and higher taxes will come as a shock to the people of Connecticut and Mississippi. This assertion from “Dollars and Sense,” of course, runs directly counter to the facts. For decades in the U.S and around the world, it’s been the states and countries with more comprehensive social safety nets (and the tax rates to pay for them) that have enjoyed higher per capita incomes and lower rates of poverty.

Setting aside some of the most absurd specific contentions included in “Dollars and Sense,” (as well as the handful of constructive suggestions — and there are a few with respect to budgeting transparency and ending tax breaks and incentives for favored corporations), the central, overriding flaw in the document is its casual assertion that North Carolina can simply slash billions of dollars in state spending without providing any detailed explanation of what programs ought to be reduced.

For all of its many flaws, the vast majority of North Carolina’s General Fund budget each year goes to the provision of core services like K-12 education, Medicaid for the elderly and disabled, and prisons and law enforcement. There is simply no way to impose such draconian cuts as the “Dollars and Sense” piece contemplates by merely cutting “pork.” To the contrary, many core services are already badly under-funded and in need of greater public investments if North Carolina hopes to leave behind its poor, rural past and join the upper echelon of advanced wealthy states.

While such fuzzy math may have worked in recent years at the federal level where absurdities like “supply side” deficit spending need not contend with the check of a balanced budget requirement, there is no way at the state level to effectuate such fiscal hocus pocus without huge and painful reductions to core services.

Before the far right can be taken seriously in North Carolina fiscal policy debates, they will have to step up to the plate and tell the world what they would really cut in order to make their “plan” work. Until such time, their proposals amount to little more than irresponsible propaganda.       


About the author

Rob Schofield, Director of NC Policy Watch, has three decades of experience as a lawyer, lobbyist, writer and commentator. At Policy Watch, Rob writes and edits daily online commentaries and handles numerous public speaking and electronic media appearances. He also delivers a radio commentary that’s broadcast weekdays on WRAL-FM and WCHL and hosts News and Views, a weekly radio news magazine that airs on multiple stations across North Carolina.
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