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State gains more national influence

020517Hood

John Hood

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Tuesday, January 2, 2018

When Congress enacted tax reform a few weeks ago, the final product bore a striking resemblance to the state tax changes North Carolina’s legislature has enacted since 2013. That’s no accident. Our state’s influence on national politics and policy has been growing for years — a trend likely to continue in 2018 and beyond.

The broad outlines of fundamental tax reform have never really been in dispute, at least among conservative and centrist policymakers. The tax code exists to pay for necessary government services, not to engineer social outcomes. It ought to raise revenue at the least-possible cost to economic growth and personal freedom.

Generally speaking, revenues are most efficiently produced by levying low tax rates on broad tax bases. However, it is possible for the base to be defined too broadly, in a way that punishes savings and investment by taxing them multiple times while consumption is taxed only once.

That’s why policies such as tax-deferred savings accounts, deductions for plant and equipment purchases, and tax breaks for households with additional children — child-rearing is the always the primary form of human-capital investment in any society — are not merely consistent with fundamental tax reform. They are required by it. On the other hand, narrower tax breaks that favor some behaviors, industries, or financing mechanisms over others are inefficient and unfair.

North Carolina’s new tax system reflects these principles. For the personal income tax, General Assembly capped itemized deductions while dramatically increasing the standard deduction and expanding child tax credits. The new federal tax plan does precisely the same thing, for the same reasons. North Carolina also slashed its corporate tax rate, recognizing that corporate taxation is really an economically costly form of double-taxation of the incomes of shareholders, workers and consumers. Again, Congress did the same thing, for the same reason.

North Carolina’s influence on the national conversation is hardly limited to tax policy. Other states are studying and seeking to emulate our state’s recent regulatory reforms, expansions of school choice and transportation-funding reforms. North Carolina is also the envy of other states in our careful approach to fiscal stewardship, which has produced a top-rated savings reserve, high bond ratings, and a series of healthy budget surpluses while other states struggled to pay their bills.

Our congressional delegation includes the powerful head of the Senate Intelligence Committee (Richard Burr), the chief deputy whip in the House (Rep. Patrick McHenry), the head of the committee overseeing federal education policy (Rep. Virginia Foxx), the former head of the Congressional Black Caucus (Rep. G.K. Butterfield), and the heads of two key conservative caucuses (Rep. Mark Walker of the Republican Study Committee and Rep. Mark Meadows of the House Freedom Caucus).

If current population trends continue, North Carolina will gain a bit more political heft after the 2020 census with the addition of a 14th seat in the U.S. House. Only five other states are projected to gain seats. All are Southern or Western states. Nine states, most in the Northeast or Midwest, are projected to lose House seats — and, correspondingly, sway in the Electoral College.

While North Carolina has gained influence, that doesn’t mean our state has made all the right calls or has all the right answers. We still have a lot to learn from other states on a variety of issues. In the health care sector, for example, North Carolina regulates both the delivery and the financing of medical services more heavily than the average state does.

More to the point, our political discourse suffers from the same malady evident in most of the rest of the country: a coarseness, a nastiness, an inability to argue one’s case forcefully and passionately without accusing the other side of evil intentions or rank stupidity.

I’d love to see North Carolina set a national example here, as well. Of course we are going to disagree. You may well think some of the policies I’ve just discussed in this column deserve condemnation, not praise. Fine. Argue your point. Don’t just hurl insults.

John Hood is chairman of the John Locke Foundation.

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