BTC POLICY BASIC: The Reality of Tax Cuts

By Alexandra Forter Sirota
Director, Budget & Tax Center
July 2015

Proponents of tax cuts continue to push a mantra of low-income taxes being a major driver of state economic growth. Research and past experience, however, has proven this approach unlikely to deliver promised economic results. Instead it can be counterproductive. Investing in K-12 education and colleges, infrastructure projects across the state, and more targeted support for main street and neighborhood revitalization initiatives presents a much better economic development strategy that helps drive the state forward.

States that have enacted large income tax cuts in recent years are not seeing a boost to their economies, adding to evidence that tax cuts that primarily benefit the wealthy and profitable corporations are not an effective strategy for promoting broadly shared economic growth. These ineffective tax cuts do, however, reduce revenue, which create and deepen revenue and budget shortfalls. Consequently, state support for core public services erodes and low- and middle- income households are often left to pick up the slack by paying even more in state and local taxes as a share of their income than their wealthy neighbors.

North Carolina’s experience is unlikely to prove an exception to the mounting evidence that broad-based tax cuts do not drive economic growth. For years, the underlying theory supporting this idea has been questioned. This warranted questioning combined with recent experiences of other states points to the need for an alternative strategy that can deliver on promoting widespread economic prosperity.

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