RALEIGH — Roy Cooper has just submitted his first budget proposal as governor of North Carolina. It is a political document — and I don’t mean that as an insult. Cooper is a Democrat facing Republican supermajorities in a state legislature that has more power than he does. So his budget plan is more about communicating his own policy priorities to the voters of North Carolina than it is about convincing GOP lawmakers to adopt his agenda.
It is telling, then, that Cooper’s plan contains no tax hikes. In fact, he proposes a modest tax cut.
Politically, this constitutes a crushing defeat for the left-wing politicians, activists, and interest groups who have spent the last six years attacking Republicans and conservatives for cutting state taxes too much.
Put another way, progressives think North Carolina’s current taxes are too low — hundreds of millions of dollars a year too low, at least — to provide adequate funding for the state’s core public services. If Roy Cooper thought the Left’s position on this issue to be correct and wise, he could have proposed to roll back recent cuts in personal or corporate income taxes.
Of course Republicans wouldn’t have complied. They believe, properly, that the state’s recent tax reductions and reforms have restored more power to North Carolinians to spend their own money as they see fit, while also making North Carolina a more attractive place to live, work, invest, and create new jobs. Before reform, our state ranked 41st in business tax climate, according to the Tax Foundation. Now, we rank 11th.
Still, if he had wanted to, Cooper could have proposed to roll back some of these tax cuts, and used the additional revenue to fund a larger budget. He could have dared the Republican legislature to say no to his plan — to refuse to “invest” in education, infrastructure, and other programs, all because they wanted to preserve “tax cuts for the wealthy.”
If the Left is to be believed, Cooper would not only have been correct on the merits but also greeted as a leader of the popular resistance to a GOP plutocracy. But, of course, the Left is not to be believed on this subject.
With regard to the merits of the policy, progressives believe passionately that state tax burdens don’t hamper economic growth and that state spending boosts growth. But their belief is contrary to most empirical evidence and to common sense. Even if most North Carolinians don’t read economics journals or manage companies, they know intuitively that increasing the cost of doing business is unlikely to create jobs, and that taxpayers don’t get a good return on many of the dollars they already surrender to the government.
As a political matter, Cooper knows that he doesn’t owe his narrow victory last November to voters who think North Carolina’s taxes are too low. He isn’t going to score policy wins in the coming months, or Democratic wins in the 2018 midterms, or re-election in 2020 by lurching leftward.
Rejecting the Left’s advice on tax hikes wasn’t the governor’s only nod to fiscal reality. Although Cooper said on the campaign trail last fall that North Carolina had been saving too much, his budget would add $463 billion to state savings accounts next year — $313 million to the rainy-day fund and $150 million to reduce the state’s unfunded liability for retiree health benefits.
By making these observations, I don’t mean to suggest that the budget plan Cooper actually opted to send to the General Assembly deserves passage. It would spend too much — about $1 billion more next year in General Fund programs alone, and billions more if other funds are included in the calculation.
Nevertheless, even most of Cooper’s imprudent spending increases in FY 2017-18 are for one-time expenses, not for ongoing obligations. As a political document, his budget signifies that there is a robust debate among North Carolina leaders about how much and where to cut taxes. Meanwhile, the Left is on the outside looking in, again.
John Hood is chairman of the John Locke Foundation.