North Carolina Is Still Open For Business

by Patrick Gleason   April 27, 2016

Patrick Gleason is director of state affairs at Americans for Tax Reform and a senior fellow at the Beacon Center of Tennessee, a free market think tank based in Nashville. Follow Patrick on Twitter: @PatrickMGleason

North Carolina has been generating national headlines over passage of House Bill 2, the new state law blocking a local ordinance passed by Charlotte earlier this year that allows people to use public restrooms assigned to the gender with which they identify. Opponents have criticized the new state law as discriminatory, while proponents assert that it was necessary for public safety. A number of corporate leaders have spoken out against the law, and critics point to business community opposition to HB 2 as proof that the law will hurt the state economically.

Regardless of one’s opinion on HB 2, it cannot overshadow or remotely counteract what North Carolina has done legislatively over the last five years to become one of the most attractive places in the country to do business, invest, live, raise a family, and retire. Since Republicans took control of the state legislature for the first time in over a century in 2010, North Carolina legislators and Gov. Pat McCrory (R), who was elected in 2012, have enacted a collection of policy reforms that is more impressive from a free market and limited government standpoint than what any other state accomplished during that time, with the arguable exception of Wisconsin.

First there is North Carolina’s historic tax reform act of 2013, which relieved the state of the dubious distinction of having the highest personal and corporate income tax rates in the Southeast. Aside from Florida & Tennessee, which do not tax income, North Carolina now has the lowest personal and corporate income tax rates in the region as the result of the tax changes signed into law by Gov. McCrory. Thanks to the tax relief enacted in 2013, individuals, families, and employers across the state get to keep more of their hard-earned income. Going into 2013, North Carolina had the 44th ranked business tax climate in the country on the non-partisan Tax Foundation’s business tax climate index. Thanks to the 2013 tax reform act, North Carolina went from only beating six states, to having the 16th best business tax climate in the nation.


Despite the doom and gloom Democratic legislators and progressive activists predicted about the 2013 tax cuts, North Carolina has realized budget surpluses for the last two years, which permitted further income tax relief in 2015 bringing the income rate down to 5.499 percent. If revenue targets continue to be met, the state corporate income tax rate will drop from 4.0 to 3.0 percent in 2017. Even Virginia Gov. Terry McAuliffe (D), former chair of the DNC and one of the most partisan politicians in America, has proposed cutting his state’s corporate income tax in response to what North Carolina has done. Imitation is the best form of flattery, the saying goes.

The fact is that despite the hyperbolic rhetoric coming from Democratic politicians and progressive groups, the numbers make clear that North Carolina has performed well under GOP control based on the key metrics of economic health. John Hood, chairman of the John Locke Foundation, a free market think tank based in Raleigh, explains how North Carolina’s net gain of over 250,000 jobs since June 2013 compares to regional and national trends:

That’s an increase of 6.2 percent, a rate significantly higher than the national average of 5.1 percent. If North Carolina had simply matched the national average in job creation, there would be about 45,000 fewer jobs in our state right now. Doing the same math for a regional comparison yields different numbers depending on whether you use a simple average of the job creation rates of the 12 Southeastern states (which translates into 82,000 fewer jobs if North Carolina had only matched it) or a weighted average that gives a lot of statistical heft to fast-growing Florida (and translates into 38,000 fewer jobs).”

Republican legislators have expressed their intention to use the 2016 regular session, which convened this week, to provide further tax relief by increasing the standard deduction. Such a tax cut would provide the most benefit to low and middle-income households. One would think North Carolina Democrats would be interested in such a proposal to provide tax relief to North Carolinians who can use it the most. Instead, they have used recent weeks to recycle tired attacks on the tax changes enacted in recent years, such as the claim that they were just a giveaway to the rich. This critique is inaccurate, misleads the public, and is belied by government numbers, which document the fact that Gov. McCrory and Republican legislators have cut taxes by more than $5 billion on net, and every income group saw an average net tax cut.

In the weeks leading up to this year’s legislative session, Democrat legislators have been busy attacking the expansion of state sales tax to some services that was part of the 2013 tax reform package that significantly reduced income tax rates. It’s worth noting that many of the same Democratic lawmakers who are decrying the sales tax expansion to some services were supportive of then-Gov. Bev Perdue’s (D) effort to raise the sales tax on all goods and services 14 percent in 2012 by cancelling the scheduled sunset of the temporary one point sales tax hike enacted by Perdue and legislative Democrats in 2009. Democrats in North Carolina like to portray themselves as champions of the poor and defenders of the downtrodden, yet it was Republicans who blocked Gov. Perdue & Democrat legislators’ effort to impose this regressive tax hike that would’ve cost North Carolinians approximately $1 billion annually.

In addition to implementing significant income tax rate reduction, Gov. McCrory, Senate President Phil Berger (R), and Speaker Tim Moore (R) have implemented regulatory reform every year since 2011. On top of that, North Carolina lawmakers passed unemployment insurance reform that retired a more than $2 billion debt to the federal government. Gov. McCrory and Republican lawmakers have also won national praise for passing legislation to offer scholarship grants to parents from low income households and those who have children with disabilities so that they can provide a better education for their children.

North Carolina Gov. Pat McCrory (Photo credit: Gov. Pat McCrory)

Along with providing further income tax relief benefiting low and middle income households this year, North Carolina lawmakers have recently been discussing occupational licensing reform, an issue that has brought together Democrats and Republicans in states around the country, as well as Washington, D.C.

When it comes to occupational licensing requirements in North Carolina, “there are inconsistencies throughout the system,” said Becki Gray, president of outreach for the John Locke Foundation. “It costs $300 for a license to practice law but $923 to become a sign language interpreter. It takes 169 hours of training to earn an emergency medical technician license but 1,528 hours for a barber.”

Less than 5 percent of the U.S. workforce was covered by licensing laws in the 1950s. By 2006, 29 percent of occupations required a license from a government agency, according to a National Bureau of Economic Research working paper authored by economists Morris Kleiner & Alan Krueger. There appears to be an increasing recognition across the political spectrum that onerous occupational licensing requirements serve as a form of protectionism that stifles competition and prices many out of employment opportunities.

The Obama White House issued a report last year highlighting the challenges posed by the rise of licensing requirements, and many conservatives and libertarians have long pointed to the increasing number of occupational licensing requirements that address no legitimate consumer safety concern as unnecessary barriers to employment. An egregious example of occupational licensing run amok that is often cited is the requirement in many states that anyone who wishes to earn a living braiding hair must complete of hundreds of hours of training, most of which has nothing to do with hair braiding. Kentucky and Nebraska legislators recently voted to repeal such requirements for hair braiders in their states.

Earlier this month North Carolina legislators held a hearing to consider a proposal to eliminate or consolidate nearly 20 occupational licensing boards of questionable value and necessity. The hearing room was packed to capacity, demonstrating the increased interest and attention that occupational licensing requirements are beginning to get.

North Carolina has been getting a lot of negative press lately, but the state has a good story to tell. Progressive activists, Democrat lawmakers, and Attorney General Roy Cooper want to talk about bathrooms, because talking about the top issues facing North Carolinians is not politically beneficial to them. Their proposals for higher taxes, more government spending, increased bureaucratic intrusion in the private sector, and less school choice for parents and students is a platform that doesn’t sell well in most parts of the state. Hence, Democrats will try to keep the discussion about bathrooms.

The real story coming out of North Carolina is the impressive record of policy reform over the last half decade, and how it has helped make the Tar Heel State one of the best places in the world to live and do business. If Gov. McCrory & North Carolina Republicans get that story out to voters, they’ll do well this fall. Unfortunately for them they’ll be working against a motivated Democratic party, a well-funded network of outside groups, and a mainstream press that doesn’t want to tell the North Carolina success story, but instead talk about bathrooms.

Patrick Gleason is director of state affairs at Americans for Tax Reform and a senior fellow at the Beacon Center of Tennessee, a free market think tank based in Nashville. Follow Patrick on Twitter: @PatrickMGleason



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