Does Gov. Roy Cooper believe that North Carolina’s tax burden should be $3 billion higher?
It’s a fair question to ask given what Charlie Perusse, the governor’s budget director, said at a recent press briefing. While explaining that the Cooper administration will likely propose vastly more spending next year than the state will receive in revenue, Perusse complained that all the tax changes enacted by the Republican-led legislature over the years will result in $3 billion less revenue during the 2018-19 fiscal year than what would have been in the case under a straight-line extrapolation of the fiscal policies of the last Democratic governor Perusse worked for, Bev Perdue.
Although counterfactuals are hard to establish with certainty, assume for the sake of argument that Perusse is correct. Assume that without the GOP tax cuts, North Carolina’s annual tax burden would be $3 billion higher.
Does that mean that Roy Cooper wishes those tax cuts hadn’t happened? If Democrats had the votes in the General Assembly, would he propose a $3 billion tax hike to fund state government at an “acceptable” level?
If I were asking the more left-wing members of the legislature or the political class in Raleigh, their answer would be yes. They truly believe North Carolinians should be paying $3 billion more in taxes. They have been railing against Republican tax policies for seven years.
Cooper, who doesn’t hail from a safe seat, probably wouldn’t go all in on a $3 billion tax hike. While jacking up income taxes on wealthy households or corporations might get him part of the way there, achieving a $3 billion haul would also require reversing tax cuts the General Assembly has bestowed on everyone else.
So, assuming the governor doesn’t have a political death wish, does he really favor just a $2 billion tax hike? A $1 billion tax hike? Inquiring minds want to know — particularly since, during the 2016 campaign, Cooper repeatedly dodged such questions.
What Cooper said during the 2017 budget debate, and reiterated a few days ago, is that he’d at least like the General Assembly to rescind the latest round of tax changes the legislature approved over his veto. This includes rate reductions on individual income (from 5.499 percent down to 5.25 percent) and corporate income (from 3 percent to 2.5 percent).
These tax savings kick in during the middle of the 2018-19 fiscal year. Reversing them would yield a half a billion dollars for new state appropriations. Spending lobbies in Raleigh would be delighted at this prospect.
The positions of the Democratic governor and the Republican-led General Assembly on this matter vividly illustrate the partisan divide about government’s proper size. Democrats believe that taxing more to fund more state expenditure would result in net economic benefits and social progress.
Republicans believe that the policy mix they’ve followed since winning their legislative majorities — taxing less, keeping expenditure growth below the combined rates of inflation and population growth, and setting firmer priorities within that unbinding but prudent spending cap — is the wiser course to follow.
They don’t deny that the state has essential duties to perform and valuable services to deliver. What Republicans deny is that state government was at its optimal size in 2008, before the fiscal effects of the Great Recession and the GOP takeover of the General Assembly. They believe a smaller, more focused government always made more sense. That’s what they’ve delivered — North Carolina will still spend more than $60 billion in state and federal funds next year — along with a sizable cushion of rainy-day funds and other reserves well in excess of $2 billion.
Perusse told reporters he was concerned that revenues might end up somewhat below projections by next spring. It’s too early to say for sure. But if that happens, it’ll likely be because of a weaker-than-expected economy. Would the Cooper administration really favor raising taxes, or even yanking back promised tax relief for households and businesses, in the context of a weaker-than-expected economy?
I hope not.
John Hood is chairman of the John Locke Foundation and appears on the talk show “NC SPIN.” You can follow him @JohnHoodNC.