The people currently in charge of the General Assembly and their supporters are busy these days giddily touting the news that the right-leaning Tax Foundation has moved North Carolina up 28 spots in its 2015 rankings of state overall business tax climates.
North Carolina now ranks 16th after being 44th a year ago. That’s the biggest jump in the history of the misleading index and the think tankers on the Right see it as a compelling confirmation that Governor Pat McCrory and legislative leaders made the right decision in 2013 by slashing taxes, with most of the benefits going to corporations and wealthy individuals.
Sadly, much of the media is repeating the propaganda, claiming North Carolina is now a much better place for business too, without putting the Tax Foundation rankings in context which sheds a much different light on the “achievement.”
First, the ranking is solely based on taxes with no regard to how the state economy is going, how businesses are faring overall, or any measure of the quality of life for business leaders and their employees.
The more a state slashes taxes, the better it does in the ranking regardless of what damage the tax cuts inflict on the state’s schools and infrastructure, both of which are key factors on where businesses decide to locate or expand.
Theoretically a state determined to rise in the rankings could slash taxes to the point that public schools suffer greatly, with larger classes, fewer teacher assistants, a lack of textbooks, and shortage of classroom supplies. That ought to sound familiar.
Secondly, the entire philosophy of the Tax Foundation and its followers is that lowering taxes always translates into economic growth, but not only is there no consensus among economists about that, there are real life examples that prove otherwise.
Kansas may be the most glaring case study that casts serious doubt on the Tax Foundation dogma. At the insistence of Governor Sam Brownback the legislature there passed one of the largest state tax cuts in history in 2012 to the delight of the folks on the Right, who guaranteed that an economic boom would result.
But now two years later, Kansas is struggling with massive revenue problems, slashing school funding and cutting essential services and the state’s economy is growing slower than the national economy as a whole. Not coincidentally the once popular Brownback faces a tough reelection battle in the still conservative state.
And finally, as the Center on Budget and Policy Priorities points out, the business climate index doesn’t even provide a clear picture of the taxes businesses actually pay in every state. Instead it cherry picks parts of the tax codes and ignores others. The Center quotes one economist saying the ranking shouldn’t be called a business climate index at all but ought to come with the title “Stuff the Tax Foundation Doesn’t Like.”
Remember all that the next time you see a headline touting North Carolina jump in the Tax Foundation business climate rankings. It’s not an analysis of how our state is doing at all.
It has little to do with the economy and isn’t even an accurate picture of the taxes businesses and individuals actually pay. And it ignores a long list of factors that business leaders rely on when making their decision about where to locate, from transportation to workforce readiness to quality of life for employees.
The Tax Foundation ranking isn’t any way to evaluate the decisions our leaders have made. It’s a flawed mechanism designed to reinforce an ideological agenda. And it ought to be reported with a little more context.