At a time when heated debate rages over House budget cuts in North Carolina, a new study finds that public investments are more effective at creating jobs and prosperity than tax cuts, contrary to one-sided claims drawn from economic models.
The UNC Center for Competitive Economies (C3E), at the behest of state legislative leaders, recently estimated the economic and employment impact of proposed tax reductions that would total $1.6 billion in fiscal year 2011-12, and $2.0 billion in 2012-13. The researchers attempted to predict the impact on jobs from allowing the temporary sales tax and high-income surcharge to expire, cutting the corporate income tax rate, and providing a substantial income-tax exemption on business income.
Yet according to a study released this morning by the NC Budget & Tax Center, C3E used the IMPLAN analytical tool to assess the impact of tax reductions without any consideration of the reduction in jobs and investments in public structures that would be required with fewer tax dollars available. The model also grossly overstates the employment-related impact of cutting taxes, the report states, and ultimately provides no reliable estimate of the complete employment and economic impact of the House budget.
C3E’s IMPLAN analysis suggests that the proposed tax reductions would generate more than 19,000 jobs at a two-year budgetary cost of nearly $3.6 billion, an annual cost-per-job of roughly $100,000 ”This is a bad deal for North Carolina,” Edwin McLenaghan, Analyst with the NC Budget and Tax Center and author of the report says. “Especially when one considers that the multipliers employed by mainstream economists for the proposed tax cuts would yield fewer than half as many jobs as estimated by the C3E’s IMPLAN analysis.”
Instead, the report states, it is public investments and services—public schools, community colleges and universities, and health services—that are critical to building a skilled, healthy workforce capable of competing in a global economy, and comprise the vast majority of state spending. Preserving these investments leads to job creation in the short term and promotes shared economic prosperity in the long term.
“The House Budget proposal will result in a loss of jobs at a time when North Carolina must continue to maintain and create employment opportunities for its growing workforce,” says Alexandra Forter Sirota, director of the Budget & Tax Center. “The direct loss of jobs will result in additional indirect job loss in communities across the state and the cuts to services provided by workers whose jobs are lost will inevitably lead to further economic hardship.”