NC Republicans aren’t worried about the effects of tax cuts. You should be | Opinion

In mid-summer, the state capital is experiencing an odd mix of anxiety and content.

Democratic Gov. Roy Cooper is warning that plans by Republican state lawmakers to expand private school vouchers and further cut income taxes have forced our public schools into a state of emergency.

Last week, Cooper’s top budget officials said a push in the state Senate to accelerate tax cuts would cost the state $13 billion annually by 2030, a loss that would trigger major reductions in funding for public schools, community colleges and state universities, among other necessities.

The Republican-controlled General Assembly, meanwhile, has taken the week off despite being nearly a month overdue on passing a state budget. Rather than worrying about a future funding calamity, Republican leaders are debating whether it’s time to loosen the Bible Belt and let casinos into North Carolina.

The Republicans’ attitude was neatly expressed by Lauren Horsch, a spokesperson for Republican Senate leader Phil Berger. She said in response to the Cooper administration’s warnings: “For years Gov. Cooper and other Democrats have been crying wolf about how cutting taxes will drive our state to the brink and cause a budget deficit. Their hyperbolic predictions have yet to come true.”

So who’s right? Are Democrats crying wolf, or will the wolf soon be at the door?

For a third-party perspective, I spoke with Aidan Davis, who tracks state budgets at the Institute on Taxation and Economic Policy, a non-profit, non-partisan research organization based in Washington, DC.

Davis said North Carolina is part of a national trend of cutting state taxes, particularly income taxes. She said the movement in blue states as well as red states reflects unusually strong tax revenue and a flood of federal COVID relief money. Most states are flush and lawmakers are eager to take the popular step of lowering taxes.

But that approach, Davis said, is risky. Lawmakers are responding to temporary prosperity by imposing what could be long-term austerity.

“What the strong revenue has done is temporarily mask some of the impacts of these tax cuts that are being proposed and passed,” she said. “The reality is that they are reducing revenue in a major way.”

Republicans, though they know better, still cling to the idea that cutting taxes somehow increases tax revenue. But, no matter how large their majorities, Republicans can’t repeal math.

“It’s not controversial that tax cuts reduce revenue. That seems obvious,” Davis said. “It’s been well documented that the history of cuts in North Carolina over not just the past couple years but over a decade have resulted in deep revenue losses to the state.”

Republican lawmakers say that North Carolina’s growth in population and the expansion of its tax base allows for lower taxes. But Davis, who lives in Asheville, said that perspective doesn’t take in the whole picture.

“North Carolina is a fast-growing state, but that also means that we have rapidly growing expenses. So there’s two sides of the coin,” she said. “You need to have rising revenues to cover the growing costs that are coming both from inflation and an increase in population.”

As North Carolina pushes toward lowering personal income taxes and eliminating the corporate income tax, its taxes will become increasingly regressive. Allowing casinos and sports betting is just another form of regressive taxation.

“The trickle-down tax cutting for the rich agenda that we’ve seen pushed in the states has only three potential outcomes,” Davis said. “You’re going to see drastic cuts in state and local services, or it’s going to be higher taxes on poor or middle-income families or, more often than not, it’s going to be a mix of those two things.”

She added, “If lawmakers are choosing to prioritize tax cuts, which is happening across the country, they have to deprioritize something else that could be strengthening their states.”

Despite Republicans’ nonchalance, there is a wolf coming to North Carolina’s door.

This story was originally published July 28, 2023 at 5:00 AM with the headline "NC Republicans aren’t worried about the effects of tax cuts. You should be | Opinion."