What They Think They Know

By John Hood, President of the John Locke Foundation and NC SPIN panelist. Whatever your political party or persuasion, you may think that North Carolina’s many public-policy challenges reflect from a lack of knowledge on the part of policymakers and the general public. I don’t agree. I think far greater problems derive from the fact that people think they know many things about North Carolina public policy that aren’t, in fact, true.

Some of the faulty “knowledge” comes from long memories. People remember things that may have been true sometime in the past, but aren’t anymore. For example, many North Carolinians still cling to the notion that the state’s public schools are among the worst in the nation. This is false. North Carolina’s public schools are close to the national average in most performance measures, and higher than average in mathematics.

Whether matching the U.S. average is sufficient in the international economy of the 21st century is a separate issue, of course.

On the other hand, some of the faulty knowledge comes from a lack of memory. Recent arrivals to North Carolina from other states often make assumptions that confuse key issues. For example, they may believe that if states such as Texas and Florida can pay their bills without income taxes or sky-high sales taxes, North Carolina should be able to do the same.

Actually, localities play a bigger role in funding public education in these states than they do in North Carolina, where most school funding comes from the state. To replicate the tax model of Texas and Florida would require not just higher sales taxes but also significantly higher property taxes (plus significant state budget cuts and other revenue generators comparable to the Texas oil industry or the Florida tourism industry). There may well be a persuasive case for North Carolina to do follow this course, but first it must be accurately described.

Another source of faulty knowledge is headline-grabbing “studies” that lack empirical validity. Is North Carolina one of the best places in the country to do business? According to some media organizations, we are. According to actual business decisions and economic results, we aren’t.

Similarly, many people – in our state and elsewhere – have come to believe that the University of North Carolina system is one of the most efficient in the country. They believe this because national media organizations have reported that UNC is a “bargain” by national standards. The flaw here is mistaking the price (tuition and fees) for the cost (actual expenditures per student or per degree granted). Even after recent budgetary pressure, our state still subsidizes UNC to a far greater degree than most states subsidizes their public universities. The sticker price to students may be relatively low, but the UNC system is well above average in operating costs. Its results do not appear to be comparably high.

Another example of sticker-shock knowledge that doesn’t really comport with reality is the notion that North Carolina invests heavily in highways because the state levies one of the highest motor-fuels taxes in the U.S. No, what that high gas tax truly means is that North Carolina, unlike most states, has no county road systems. As a result, our local taxes – on real property and retail sales – are somewhat lower than they would otherwise be, and our statewide transportation taxes – on fuel and automobiles – are proportionally higher. If you combine all revenue sources and look at actual spending per person on highways or other transportation assets, North Carolina ranks below the national average.

Finally, some faulty knowledge stems from active propagation of misinformation. Perhaps you have heard recently that North Carolina’s current tax code is steeply regressive. This is false. It is based on statistics supposedly describing state and local taxes that actually include the value of federal tax deductions but not the federal taxes against which those deductions are taken. In statistics class, such an analysis would get an F.

The truth is that our current tax code is roughly proportional for most North Carolina households. The effective tax burden by income varies only modestly around a mean of 9.5 percent of income. The wealthiest quintile of N.C. households do have the lowest burden, at 9.1 percent, but the difference isn’t exactly earth-shattering and needs to be understood in context. Those wealthiest households also pay a disproportionately large share of federal taxes, which now fund nearly as much of North Carolina’s state budget as General Fund taxes pay. If all taxes are considered, government takes about twice as high a proportion of income from wealthy households as it does from poor households.

Our challenge, then, is not simply to inform policymakers and the public. First we have to convince them to discard the faulty information they already "know."