Fringe Leftists Offer Thoughtless Response to Civitas Tax Modernization Study

In response to the Civitas Institute’s study evaluating a tax plan that would eliminate state income taxes, the far-left Budget & Tax Center released a predictable and economically illiterate response that further confirms their dogmatic faith in centralized political power.

The short response is tightly packed with fallacies, sloppy and misleading “data”, and glaring omissions.

For starters, BTC claims that North Carolina’s economic woes are a “non-problem.” For folks that claim to care about the poor and unemployed, they sure seem ready to sweep our state’s 9.2% unemployment rate (5th highest in the nation) and lagging incomes under the rug in order to defend their extremist ideological dogma. BTC then laughably try to make the claim that North Carolina’s woes are simply the result of its citizens not forking enough money over politicians in Raleigh, and repeatedly make the claim that our revenue system is “inadequate” and revenue collections are at “historic lows.” Naturally, we know better. As this article and chart illustrate, North Carolina went on a 30-year spending binge from 1979-2009 that saw inflation-adjusted state spending increase at three times the rate of population growth. The minor correction over the last couple of years is barely a blip on the radar screen of that long-term trend. Moreover, the state General Fund budget being referenced here doesn’t capture the full amount of state spending, which also includes federal government funds passed through to the state. When factoring that in, state spending growth rates are even more dramatic. But for these worshippers of state power who long for more centralized political control over its subjects, that’s still not enough.

They then attempt to counter our study’s assertion that sales tax revenue is more stable than income tax revenue. Oddly, they admit that income tax revenue is more volatile “in the short-term” but say that is ok because income tax revenue grows more quickly during economic boom years. In short, they approve of wild revenue swings which enable state budget writers to overextend budget commitments during the flush economic years and result in panic when recession hits and reveals the unsustainability of those spending commitments. They conclude their defense of this roller-coaster method of state budgeting by warning that the income tax elimination plan would “likely reduce the long-term growth of state revenue.” Let’s hope so!

Next they try to refute the claim that there is no correlation between high income tax burdens and economic growth. To do this they of course need to ignore mountains of evidence, and instead rely mostly on one paper produced by a far left-wing think tank in Washington DC. This paper was soundly refuted last year, but BTC can’t be bothered with such details. Their underlying premise that states can somehow tax their way to prosperity is so patently absurd it does not warrant a response.

Finally, the primary focus of their paper is on the predictable assertion that sales taxes are highly “regressive,” and that low-income households would be hit hardest by an expansion of and slight increase of the sales tax. But BTC has in fact advocated for expanding the state sales tax in the past, and certainly had no problems when Gov. Perdue created a “temporary” sales tax hike in 2009. Oops.

But this leads to the glaring omission, and that is the fact that BTC completely ignores the chart prominently featured in our study that factors in the value of government benefits when examining how regressive a sales tax may be. In short, when they attempt to calculate the amount of sales tax dollars paid as a share of income, they willfully and misleadingly ignore a vital part of low-income households’ resources: government benefits such as Medicaid, food stamps, free/subsidized child care, housing subsidies, etc., etc. etc. Once that is factored in (and it can add to several thousands of dollars), along with the federal taxes paid by middle and upper income earners, the “regressivity” argument collapses.

I could go on, like discuss the difference between a nominal tax burden and tax incidence (i.e. who really bares the burden of a tax, like employees who receive lower pay due to high corporate taxes), but the BTC’s slapdash and surface deep paper has already consumed too much of my time.

The people of North Carolina deserve legitimate debate about such an important topic. Unfortunately the folks at BTC are only capable of thoughtless emoting and mindless regurgitation of talking points from a radical left-wing Washington DC think tank.