The state senate’s budget is chock full of tax cuts while continuing to underfund our schools and universities. But tax cuts are what really matter to the GOP. Activists and legislators perpetually tout the Tax Foundation’s business climate ranking as evidence that their tax policy is making North Carolina more competitive. Since Republicans took control of the legislature, we’ve steady moved up in the rankings and now are 10th in the nation.
But the rankings don’t seem to mean squat in terms of economic success. The states with the best rankings aren’t the ones with the strongest economies. They aren’t the ones with the fast population growth. And they certainly aren’t the ones with best incomes.
The real name for the tax foundations rankings is State Business Tax Climate Index. It only compares states’ business tax structures. Republicans like to call it the “Business climate index,” as if it’s measuring how attractive a state is for businesses, but that’s misleading at best.
In fact, many of the states with the best business tax climates have struggling economies. For instance, Alaska ranks number three in the Tax Foundation’s index, but ranks 50th in economic growth. South Dakota ranks second in the index but 37th economic growth.
The reverse is also true. Several states that rank low in the Tax Foundation’s index have strong economies right now. California ranks 49th on the index, but has the sixth strongest economy in the country. The correlation between business taxes and overall economic environment is dubious at best.
In North Carolina, we’ve steadily moved up on the Tax Foundation’s index since Republicans took power, but we’ve been slipping in our rate of economic growth. Compared to other states, our economy was growing faster under Democrats while our Tax Foundation ranking was among the worst in the nation. Republicans have fixed that problem. We’ve moved up in the index while slowing our rate of economic growth. We gained a GOP talking point and lost our national stature.
Using the Tax Foundation’s ranking to imply that we’re more business friendly is just spin. While modern businesses may look at taxes as one aspect in their decision on where to locate, they take into account a lot more factors. As we move into an increasingly knowledge-based and service-based economy, an educated workforce, good universities and colleges, and a high quality of life will attract more modern industries than taxes alone.
The controversies caused by GOP adherence to social conservatism and their mismanagement of our universities has probably done far more harm than any tax cuts have helped in terms of business recruitment and economic progress. Companies looking for a place to locate want an inclusive environment and yet the Republicans continue to attract negative national headlines. The controversy over Nikole Hannah-Jones is just an extension of the HB-2 dispute over bathrooms. It not only shows a narrow-minded mentality, it highlights micromanaging and meddling in the academic affairs of a top-flight public university, just like HB-2 showed meddling in local government. That’s going to do more to scare off businesses than any tax cut is going to do to attract them. What’s keeping the legislature from meddling in corporate governance over similar issues?
Our true business climate certainly includes taxes, but they are just one indicator and, judging by the record, not nearly as major a factor as Republicans want you to believe. We have cut taxes. As the Tax Foundation says, we’re 10th in the nation in terms of our business taxes. Now, we should be trying to fix our public relations problem by putting competent people in charge of our university system. We should be adequately funding our public schools. We should be trying to change the perception that we are state moving backwards instead of one moving forward. That would do more for our business climate than yet another tax cut while our core services are still underfunded.