N&O: High taxes NO BIG DEAL

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Well, The Ol’ Reliable has started up their fact-check series on political ads.  And the first victim is an ad by the Republican Governors Association:

Claim: “Under Perdue and Dalton’s high tax policies, 40,000 more North Carolinians are out of work.”

Context: Let’s start with the number. In January 2009, when Perdue and Dalton took office, the state reported 410,784 unemployed workers, representing a 9 percent jobless rate. In March 2012, the state reported 451,657 unemployed workers. At face value, the math is correct; however, the ad doesn’t consider the growth in the labor force (94,000) or employed workers (54,000) since 2009.

The assumption that high taxes, particularly a sales tax hike, is the driving force for joblessness is more dubious. Wells Fargo senior economist Mark Vitner said it’s true that tax rates factor into companies’ decisions about where to locate jobs. But, he said, “there are so many things that affect the unemployment rate” that it’s difficult to pinpoint one cause. Likewise, Brent Lane, a researcher at UNC’s Center for Competitive Economies, refutes the idea that tax rates are responsible for putting people out of work. “This is a long-term trend, and it can’t be attributed to high taxes,” he said.

Ruling: The math is right but not the whole picture, and the assumption on causation is false.

 Where did these guys at UNC get their business education?  Have any of them ACTUALLY worked in the private sector?  Tax rates determine HOW MUCH a business owner / producer gets to keep and reinvest in things like — oh — employees. If government regulations and tax policies keep bleeding money out of a business owner / producer’s pockets, he or she has LESS to put toward retaining or hiring employees.  A good chunk of the job losses in this state can easily be attributed to (1) the ever-increasing cost of doing business in North Carolina, and (2) worries about potential new taxes and regulations at the state and federal level.  These guys at UNC — whose experience is mainly in working with governments on economic development projects — gave the steno pool at The N&O exactly what they wanted to hear. 

Read on: 

Claim: “Unemployment is 9.7 percent. One of the nation’s highest.”

Context: The RGA accurately cited the state’s jobless rate in March. North Carolina’s rate ranks as the fourth highest among all states, or No. 5 if the District of Columbia is included in the list.

Ruling: True.

Claim: “The Dalton-Perdue new 15 percent sales tax increase will kill 8,000 more North Carolina jobs.”

Context: As a part of her budget proposal, Perdue wants to increase the state sales tax from 4.75 percent to 5.5 percent, a three-quarter penny hike to generate $850 million a year. Dalton agrees with her plan. It comes after the state let a temporary penny sales tax expire in 2011. If you do the math, the increase is 15.7 percent at the state level – but the size of the increase is different for taxpayers across the state because of local sales tax levies. The RGA later clarified that the ad referred to the state sales tax.

But, again, the predicted outcome is debatable. The RGA cites a study by the UNC Center for Competitive Economies at the Kenan-Flagler Business School. The problem: The study never mentions that such a sales tax hike would cost the state 8,000 jobs. Released in April 2011, it suggests a 1-cent reduction in the sales tax could create 11,700 private sector jobs. It did not consider possible layoffs in the public sector as a result of reduced revenues.

The ad doesn’t SPECIFICALLY SAY the study made the 8000 claim.  Pay attention, guys.  Read on:

Report authors Jason Jolley and Lane said it is reasonable to assume tax hikes could have a negative affect on employment, but their research says nothing about how many jobs could be lost with a sales tax increase. To assume the inverse of their study is “layman’s logic but certainly not what our center would attest to,” Lane said. The economy also changed since the study, he added, making it difficult draw conclusions from it now.

Ruling: The description of the sales tax hike is roughly correct. Its affect on the economy is unproven and not accurate.

Unbelievable.  Increasing a sales tax makes the cost of goods go up.  If a business’s operating costs go up, it has to charge its customers more.  If customers see higher prices, they may buy less.  Or they may buy at the higher price, and not invest in something else.  A sales tax increase may not immediately cause layoffs, but it may lead to things like wage cuts, elimination of pay raises and bonuses, or the junking of future plans to expand a business.

Journalists, academics and leftists don’t seem to understand that producers DON’T just eat the extra costs piled on them by new taxes and regulations.  They get passed on to consumers, or the producers tighten their belts and scale back on growth / expansion plans.

Taking more money out of private hands and putting it into bureaucratic coffers is an economic growth-killer.  HANDS DOWN.

And so ends MY fact-check of The N&O.