Last updated: October 24. 2013 9:58AM - 1217 Views
John Hood John Locke Foundation



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After the 2010 elections put North Carolina’s legislature in the hands of Republicans for the first time in more than a century, state policy began a turn to the Right — that much is indisputable.


In 2011, the General Assembly rejected then-Gov. Bev Perdue’s call to extend a sales-tax increase costing taxpayers more than $800 million a year, with a disproportionately heavy burden on lower-income families. Instead, conservative lawmakers allowed the sales tax rate to fall, balanced the budget with spending reduction and government reorganization, and began reforming the state’s tort system and regulatory process.


After Gov. Pat McCrory’s election in 2012, a strengthened conservative majority replaced the state’s anti-competitive income tax with a Flat Tax, enacted further regulatory reforms, phased out teacher tenure, strengthened school accountability and vocational education, expanded parental choice and competition in education, reformed the state’s unemployment-insurance system, and reshaped the Department of Transportation.


North Carolina’s new conservative leaders enacted these policies with the expectation that they will promote job creation and economic growth. They had good reasons for such an expectation. In each case, there is sound empirical support for the choices they made.


Of course, that doesn’t necessarily mean that each policy will, in the end, produce the expected benefits. If problems were easy to solve, they’d have been solved a long time ago. At the very least, however, lawmakers acting in good faith ought to have been challenged on the merits of their proposals, not attacked as idiots or accused of actively trying to destroy North Carolina’s governmental institutions and middle class.


Unfortunately, such behavior was too much to ask from a panicked, embittered Left. While some liberal lawmakers, activists, and commentators did engage in substantive debate, many others resorted to character assassination and ludicrous conspiracy theories. They peddled misinformation to inexperienced or credulous reporters. They compared their opponents to segregationists and neo-Nazis. The result was the circus atmosphere of a university sit-in, not a conversation among grown-ups.


Perhaps it was just too challenging to construct substantive responses to empirical evidence supporting North Carolina’s new conservative policies. For example, liberal critics said that instead of reforming and reducing North Carolina taxes, lawmakers should have increased state spending on education, infrastructure, Medicaid, and other programs, even if higher taxes were needed.


What does the empirical evidence say? Of the hundreds of peer-reviewed studies published on these subjects since 1992, nearly two-thirds show a positive link between lower taxes and economic growth. But only 38 percent show positive economic effects from higher spending on education and only 44 percent show positive effects from higher infrastructure spending. There is virtually no evidence for such effects from higher spending on Medicaid or other public-assistance programs.


Speaking of which, a new study from economists at the New York Fed used an innovative technique for testing the effects of unemployment-insurance benefits on the labor market. They examined counties on the borders of states with differing UI policies. Because the economies of adjoining counties are otherwise similar, such a model has a good chance of isolating the effects of state policy from other causal factors.


What the Fed researchers found is that extending unemployment-insurance benefits results in higher levels of unemployment. In fact, “most of the persistent increase in unemployment during the Great Recession can be accounted for by the unprecedented extensions of unemployment benefit eligibility,” they found. While extended benefits tend to discourage recipients from accepting available jobs, the much-bigger problem is that extended benefits discourage the creation of new jobs — by holding wages above the market-clearing rate, for example, or signaling to potential employers that payroll taxes will be rising in the future.


A reasonable interpretation of this and related econometric research is that by reducing the average duration of UI benefits, the North Carolina legislature has increased the incentive for employers to create jobs and for workers to fill them.


Personal attacks and adolescent preening won’t rebut these insights. If they want to be taken seriously, liberals need to do their homework and come up with better arguments.


Hood is president of the John Locke Foundation.


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