Operatives recycle Hagan claim
Published March 16, 2015
By John Hood
by John Hood, John Locke Foundation and NC SPIN panelist, march 16, 2015.
I suppose if you thought Kay Hagan’s reelection campaign was a brilliant exercise in political rhetoric, you might try to reuse her talking points to win the political debates of 2015 or the political races of 2016.
But Hagan lost. One reason, surely, is that her campaign made extravagantly ridiculous claims about then-House Speaker Thom Tillis and the work of the General Assembly under his leadership — claims that even liberal-leaning commentators and fact checkers didn’t buy.
The most egregious was that the tax reform legislation enacted by the legislature and signed by Gov. Pat McCrory raised taxes on 80 percent of North Carolinians. The Washington Post called the claim “absurd.” The nonpartisan staff of the General Assembly, most hired under previous Democratic management, called it false. As a matter of basic mathematics, it was impossible.
Yet here we are a year later, with households filing their first income-tax returns under the state’s new code, and the usual suspects are repeating this impossible, false, and absurd claim. Their goal is transparent: to mislead North Carolina voters into believing what isn’t true so they will toss out McCrory and Republican lawmakers next year.
Once again, let me explain the source of the false claim. In 2013, the Washington-based Institute for Taxation and Economic Policy (ITEP) provided the left-wing North Carolina Justice Center with a distributional analysis of the tax reform bill. ITEP modeled the effects within each quintile (20 percent) of taxpaying households. Rather than producing and distributing a count of the share of North Carolinians getting tax hikes or tax cuts, however, ITEP/Justice Center focused on the “average” effect within each quintile — and then made the claim that for the bottom four quintiles in household income, the bill would raise taxes “on average.”
That phrase is important. Even if the study had been accurate, its finding was notthat 80 percent of households got a tax hike. In fact, ITEP/Justice Center later admitted that its numbers showed that half of North Carolina households got a tax cut, 35 percent got a tax increase, and for the rest the results were a wash. Why didn’t they lead with this less-apocalyptic finding rather than just surrender it later when pressed by reporters? The question answers itself.
Moreover, the ITEP/Justice Center study wasn’t the only one. A 2013 analysis by the General Assembly staff and a 2014 Beacon Hill Institute study for the John Locke Foundation estimated that the large majority of North Carolina households got net tax cuts from the plan.
The Beacon Hill/JLF study made another important point: to get to a significant number of households losing from tax reform, you have to count the loss of the Earned Income Tax Credit. That’s fine, but the 2013 tax reform didn’t eliminate it. The EITC was a temporary measure schedule to expire, and the legislature chose not to authorize it. By that logic, you also have to remember that the same Republican legislature chose to allow a massive sales-tax hike to expire in 2011. That sales tax hike had cost lower-income households much more than the EITC had saved them. Thus the net effect of the General Assembly’s policies was to reduce their taxes, not raise them.
When filling out their returns for the 2014 tax year, many North Carolinians are discovering that their refunds are smaller than they used to be. But when taxpayers actually compare 2014 taxes paid to previous years, most find that they are better off. A refund simply means you’ve given the government an interest-free loan.
Some households did get net hikes, however. There are three major categories: self-employed professionals who lost a temporary break, some retirees with government pensions, and some married couples with many children. The next wave of tax reform can ameliorate these effects by exempting more savings from double-taxation and by expanding per-child tax credits.
Those now peddling Kay Hagan’s discredited claim about North Carolina’s new tax code are not serious participants in the tax-reform discussion. They are liberal propagandists and partisan operatives whose efforts will, I suspect, meet a similar fate.
