RALEIGH – One of the many decisions North Carolina voters will have the chance to make on elections day is whether or not to amend the state constitution to lower the state income tax rate cap from 10 percent to 7.25 percent.
Democrats argue lowering the cap would unfairly hamstring future legislatures, stifle education spending, endanger tax revenues, and ruin our state’s bond rating. Never mind that revenues have been more than healthy through out the multiple tax reductions Republicans have pushed through in the last several years, with rates much lower than the proposed cap; or, that restricting the government’s ability to take your money is exactly what limited government is all about; or, that the raitings agencies have recently reaffirmed our AAA bond rating even while considering the potential lower cap.
But we don’t have to stick to hypotheticals, because other states have set their caps even lower and demonstrated just why opponents of this move are flat out wrong.
Georgia, a state very s imilar to North Carolina in terms of population, GDP, and industry, has recently lowered their income tax cap. Did is result in a financial implosion?
“In 2014, Georgia voters approved a constitutional amendment that capped their income tax at 6 percent. The measure passed with 74 percent voter approval. Georgia’s cap did not actually lower taxes; it simply forbade future General Assemblies from raising the income tax. The amendment effectively capped the rate at 6 percent. Similarly, North Carolina’s amendment would not lower taxes, since the individual and corporate income tax rates are already well below the proposed 7 percent cap at 5.5 and 3 percent, respectively.
How has Georgia fared under their income tax cap? They seem to be doing well.”
Wait – so keeping politicians from raising taxes above a certain level didn’t yield the fiscal Armageddon Democrats warn about? Do tell.
“Georgia has steadily increased its K-12 Education state spending since 2011. The 2014 tax cap had no negative impact on that upward trajectory.
Georgia’s state contribution to per pupil spending is less than North Carolina’s due to differences in funding mechanisms. Still, the per pupil figures are still useful for comparison because the two states have been on a similar upward trajectory (see figure below).
Since 2014, Georgia’s education expenditures have continued to increase, indicating that their income tax cap had no negative effect on the state’s education spending. In fact, Georgia fully funded its education formula for the first time this year and the state has increased education spending by $2.5 billion from fiscal years 2014 to 2019.”
Now, if a tax cap would actually lead to lower government spending that’d be a big win for conservatives that aren’t exactly thrilled with the incessant rise in state expenditures. At the very least though, Georgia’s experience proves that the Democrats’ concerns are partly partisan intransigence. More than that, though, Democrats find it untenable that the people would restrict them from their favorite activity – raising taxes.
To find out why the Democrats’ other scare tactics about lowering the tax cap are nothing demonstrably false, click here.