Governor Cooper Tells the NC Story Wrong

Recently, Governor Roy Cooper published a piece attacking his state’s tax code, and specifically the once-in-a-generation reform the General Assembly majority passed in 2013. While the Governor and his Cabinet often (rightly) tout North Carolina’s pro-business climate when wooing new business, in this post he paints a scary picture of tax hikes on the middle class and middling economic growth. The information presented by Governor Cooper is misleading and wrong. He makes a lot of statements, provides little to no justification for them, and gives no solutions to the “problems” he sees with North Carolina’s tax reform.

Please allow me to correct the record, point by point, and provide you with concrete and measurable evidence to support my claims. Our tax reform success story deserves to be told without his distortions. Governor Cooper can no longer get away with his two-faced stance on North Carolina’s economic climate.

1. Cooper’s First Claim: Ignoring his party’s regressive hikes and distorting the benefits of tax reform to working families.

“…in 2013, with legislative supermajorities and a Republican governor, Republicans in Raleigh passed sweeping tax changes that disproportionately benefited the wealthy and big corporations, with no guarantees for middle class growth.”

It is true that the Republican legislature and Governor delivered the first tax reform done in North Carolina for a very long time. Despite unified Democratic control of the legislature for almost the entire 20th century, our tax code hadn’t been systematically reformed since the Great Depression. In fact, the Democrats have a substantial history of raising taxes (see 1991, 1999, 2001, 2009, and 2010). This initial round of tax reform and preceding Republican policy choices delivered real, tangible benefits to the working class families of our great state.

First, the General Assembly only flipped to Republican control on the promise to end the allegedly temporarily sales tax hike Democratic legislators and Governor Perdue imposed. This regressive tax hike disproportionately hurt the poor and working classes, and despite Democratic promises to let it expire, Perdue and her legislative allies, many of them still in the General Assembly today, begged for it to be renewed so North Carolinians’ hard-earned cash could flow into government coffers. Republicans stood firm and let the tax expire in 2011 — which meant we, as leaders, had to tighten our belts rather than tax working families into financial crisis during the midst of the Great Recession.

Later, during the 2013 round of tax reform, we focused on making North Carolina competitive for business while increasing savings for working North Carolinians. While cutting deductions and credits that mostly beneftted special interests, we cut rates for all taxpayers and raised the standard deduction to $15,000 for those married filing jointly, $7,500 for those who are single, and $12,000 for heads of household. We cut the income tax rate to 5.8%, a cut for everyone. This meant that more of every family’s income wasn’t subject to income tax, and the rate of taxation on the rest of their paychecks went down. Lifting more people out of taxation at the bottom end of the spectrum is true reform that helps the working and middle class. See our 2013 tax legislation for yourself here, we have nothing to hide. Since then, we’ve increased the standard deduction while decreasing tax rates even further, getting North Carolinians bigger paychecks while becoming even more attractive for business growth.

2. Cooper’s Next Claim: Conflating Growing Incomes with Growing Taxes

“In our state, 800,000 households will pay more in taxes in 2019 than they did in 2012. Many of these households include small business owners and low-wage workers with children.”

This is very misleading to say the least. Take a look at the graph below, from the United States Bureau of Labor Statistics;

As you can clearly see, employment numbers have risen sharply since 2012. I ask you to use your common sense; obviously, when people are not working, they do not pay any income tax. Given that we have added more than 500,000 jobs since 2012, at least 500,000 people will be paying “more” in taxes. If Democrats had it their way, those people would be paying much more now than they do under the Republican plans. Not only that, but those additional 300,000 or so people who the Governor says are paying “more” in taxes are largely doing so because they have seen wage growth. It isn’t because their taxes have been increased as the Governor would have you believe. Take a look at the chart below, from a report by the North Carolina Department of Commerce (which the Governor has his name affixed to, I may add);

With our tax reforms, the Governor’s own report admits that we are outperforming national growth levels. It states, on page 8, “North Carolina has closely tracked the U.S. in wage growth — the state grew by 5.5 percent in real terms since 2010 while the U.S. grew by 5.3 percent.” You can see the report for yourself here;

This economic growth is why we were able to cut taxes and raise the standard deduction even more after 2013.

Finally, he ignores his own Department of Revenue, which tells us that over 350,000 of the most poor and most vulnerable North Carolinians will be removed from the state tax rolls by 2019 due to the expansion of the standard deduction (according to the state tax collectors). That is nearly a 23% increase in North Carolinians whose earnings are exempt from state income tax. To put this in perspective, this means that in a state with a little over 10 million people, and 4,742,359 working individuals, 1.5 million will not owe any state income tax on their earnings by 2019. If Governor Cooper truly cares about the working class and those middle to lower income residents of our state, he will praise these efforts and join us in our effort to bring the standard deduction up to the national poverty level.

3. Cooper’s Next Claim:

Governor Cooper claims that the legislature raised taxes “67” different ways on working North Carolinians.

Can he provide proof of this claim? When we started on tax reform back in 2013, we had several priorities; to simplify the current system, to broaden the base on which taxes are paid, and to lower the rates that all people pay. The Governor might be attacking our true reform efforts and our commitment to fiscal responsibility. This chart below illustrates what I mean by “true reform” during the periods of 2013–2016. While total reform means changes in sales, corporate, and personal income categories, relief we can provide to individuals is our number one priority. Perhaps the Governor is referring to how Republicans cut out goodies in the tax code that benefitted special interests while doing nothing for average families. Instead of preserving loopholes, exemptions from taxation, or credits and deductions that benefitted one group or industry, we lowered rates overall so that we could lower the rates that everyone pays on their income.

4. Cooper’s Fourth Claim:

“The end game in Washington is the same as it has been for Republicans in Raleigh — alter the tax code to drastically favor the wealthy, and when it comes time to fill the hole created by these irresponsible decisions just balance the budget by cutting education and health care.”

Continuing a sad pattern evident since his election, the Governor chooses to impute negative motives to his political opponents and distort the facts. North Carolina has invested in education; and while there is work to be done, we have given substantial, deserved raises to our teachers and increased overall education funding. In health care, we have fully funded our Medicaid system and we continue to expand our efforts to combat the opioid epidemic. On the topic of budgets, North Carolina has had a revenue surplus every year since the tax reform of 2013! Unlike other states, we made sure that our tax cuts and reforms didn’t bust our budgets so we’ve been able to cut taxes, fund education, and build up a $1.5 billion rainy day fund to weather the next recssion.

This quote sums up our liberal Governor’s mentality — presume that every dollar the state can collect should be collected, and instead of responsible, pragmatic budgets, we should focus on increasing spending in the public sector.

By enacting comprehensive tax reform, Republicans in North Carolina demonstrated our contrasting vision — keep more money in taxpayers’ pockets, stimulate business opportunity, and budget responsibly. This is the model Washington must adopt as they continue to consider tax reform.