State House leaders attended a legislative conference on tax reform in Arkansas to share how the state has approached tax reform over the last few years.
Speaker of the House Rep. Tim Moore (R-Cleveland) attended the Tax Reform and Relief Legislative Task Force in Little Rock with House Majority Leader Rep. John Bell (R-Wayne), Finance Committee Senior Chairman Rep. Bill Brawley (R-Mecklenburg), and Finance Committee Co-Chairman Rep. John Szoka (R-Cumberland).
The gathering included elected officials from around the country who were gathered with the goal of improving their own respective states’ economic outlook through tax reform.
The gathering included elected representatives from Oklahoma, Louisiana, Kansas, Indiana, and Arkansas at the legislative hearing, according to its agenda.
“North Carolina is a national model for the types of tax reforms this task force is considering, “Moore said.
Moore advised that each state look at their own particular state as a unique situation and build out a tax system that works for their state and their workforce.
Moore didn’t just give credit for the state’s economic upturn to tax reforms though.
“Each state’s economy is unique,” Moore said. “Devise a tax system that works for your workforce. We changed our unemployment system, we curtailed fraud in government programs, we make regulations that actually make sense, and we make transportation decisions on detailed analytics.”
Other legislators lauded simplifying the tax code and evolving the system as opposed to overhauling everything in place.
“It took a lot of courage and compromise for North Carolina to achieve successful tax reform along the way,” Moore said. “We pushed ahead towards a fairer, simpler tax structure by keeping our shared goals of a pro-growth system and relief for families in mind as we worked together.”
Civitas Analyses Tax Reforms in High Point University Study
Last year the Civitas Institute commissioned a study to study the effects of recent tax policy changes in the state.
The study was completed by a High Point University professor within the school of business and a researcher with Macrometrix, a research firm.
“There has been much written and much discussion, both positive and negative, about recent tax policy changes over the least five years, but what does the research really tell us?” Civitas Executive Vice President Brian Balfour said. “To get more detailed answers to this question, the Civitas Institute commissioned a study to provide robust, rigorous analysis of state tax policies. Specifically, the study examined three policy changes: the expiration of the (at the time) temporary 1-cent sales tax in 2011, the unemployment insurance program reforms of 2013, as well as the income tax cuts included in the 2013 tax reform package. The bottom line conclusion reached by the study’s authors is, and I quote, ‘North Carolina’s recent major changes in economic policy have resulted thus far in sizable increases in economic growth, employment, and salaries, and reductions in unemployment rates.’”
Balfour also said that the institute has undertaken an aggressive marketing campaign for the study including web, print and billboard advertising.
Dr. Stephanie Crofton, associate dean of the Earl N. Phillips School of Business at High Point University and co-author of the study, gave some more detailed information to accompany copies of the study disseminated to those gathered at a press conference announcing the study.
“Economic theory tells us that higher taxes and larger and longer unemployment benefits detract from business and worker incentives to invest, work and look for work,” she said. “But how large are the impacts and changes in these types of policies? We tried to answer those questions in a recent study, ‘More Jobs, Bigger Paychecks, the Truth about North Carolina’s Tax Reforms,’ released on October 10 by the Civitas Institute.
“In recent years North Carolina has carried out major changes in its tax policy. From 2000 to 2016 our state’s sales and income tax cuts were almost unmatched in size by other states, with North Carolina being unique in approving such significant cuts to both taxes in such a timeframe.”
Crofton said that the non-partisan Tax Foundation raised North Carolina from 44th to 16th in a single year on its state business tax climate index due to the policy shifts.
The study focused on the effects of recent changes to the state tax policy that included the sunset of the temporary one-cents sales tax surcharge in 2011, introducing a flat income tax that reduced the top rate from 7.75 percent in 2013 to 5.80 percent in 2014, reducing maximum weekly unemployment insurance benefits from $522 in 2013 to $350 in 2014, and reducing the maximum number of weeks for regular unemployment insurance benefits, in stages, from 26 in 2012 to 12 in 2015.
Their research found that reducing sales tax rates in 2011 increased state Gross Domestic Product (GDP) by $1.4 billion and increased salaries by $800 million.
The 2013 tax reforms also increased state GDP by $800 million, reducing maximum unemployment insurance benefits increased state GDP by $6.3 billion and reducing the maximum number of weeks of regular unemployment insurance benefits increased employment by 88,000 jobs and reduced the unemployment rate by 1% between 2012 and 2015.
“To estimate the impact of North Carolina’s recent policy changes, we measured the relationships between key economic policies and key measures of economic performance across the 50 states and the District of Columbia during 2000 to 2015,” she said. “Our analysis shows that states with lower sales taxes, income taxes and lower and shorter unemployment insurance benefits experienced higher economic growth, employment growth, and wage growth, and lower unemployment rates.”
Already the study is facing scrutiny from the NC Justice Center, though.
Patrick McHugh, an economics analyst for the NC Justice Center, attended the press conference on Tuesday as well as the legislative briefing that followed the press conference.
McHugh questioned the methodology of the study saying that the study failed to prove causation, and just showed correlations between the policies and positive effects to North Carolina’s economy.
Crofton responded to McHugh’s concerns following the press conference, saying, “We controlled for quite a few additional variables: for example, controlling for nationwide economic conditions to make sure you’re not catching simply what was going on is the U.S. as a whole, things specific to North Carolina, etcetera.”
Dr. Luis Dopico, a research consultant at Macrometrix and co-author of the study, responded to McHugh’s claims as well, saying that one of the limitations of statistics is showing causation and that all that can be done is controlling for as many variables as possible to draw the best conclusions possible.
“That is a standard limitation of statistical analysis. Statistical analysis can never hope to solve causation,” he said. “You provide enough evidence in one direction. The burden of proof is with the other side to show why all of these correlations have no causation. We also controlled for whether some states were richer or poorer, [because] a lot of economic theory predicts that poorer economic states might grow faster than others.”
Dopico said that they did control for many variables in their experiment but only reported the significant findings.
The Civitas Institute is a conservative think tank in Raleigh.