Over the past five years, North Carolina has become a more attractive place to work, live, invest, and do business.
The state tax burden is lower — by hundreds of millions of dollars a year — and restructured in a way that reduces the double-taxation of investment in new jobs, facilities, and enterprises. Primarily by allocating existing revenues more efficiently, the state has vastly increased its spending on high-value roads and bridges. And through a series of regulatory reform measures, policymakers have made it easier to start or expand private companies and comply with important health and safety rules at the lowest possible cost.
There is promising evidence that these policy initiatives are beginning to bear fruit. Jobs and incomes are growing faster in North Carolina than in most other states. Indeed, over the most recent 12-month period, our state ranked 9th in the nation in the rate of employment growth and 10th in per-capita income growth.
Still, we all know that North Carolina’s economy has yet to fully recover from the Great Recession, and that outperforming a nation with one of the weakest economic recoveries in modern times is hardly grounds for braggadocio. There’s a lot more work to do.
Regarding the three main services under the purview of state government — law and order, education, and infrastructure — Gov. Pat McCrory and the General Assembly should continue to reform, restructure, and renew. Spending on public safety is the most likely to result in higher levels of economic growth in the future, according to empirical research, but education and infrastructure expenditures can be growth-enhancing, too, if done wisely.
On the revenue side of the public-sector equation, there are already additional tax cuts coming in North Carolina. Because the state has paid off its unemployment-insurance debt to the federal government, and built its trust fund back up above $1 billion, state payroll taxes will automatically drop by hundreds of millions of dollars a year. The state’s corporate tax is also scheduled to drop to a highly competitive 3 percent rate by 2017.
I favor additional progress on tax reform, to be sure, including provisions such as capital-gains tax relief to further reduce the double-taxation of savings and investment. But I would urge policymakers to make additional progress on regulatory reform, as well. Unneeded or counterproductive regulations are indistinguishable from taxes in their effects on households, businesses, and economic activity. They may not show up in the annual accounting of state taxes and spending, but they are just as present — and just as significant, if not more so.
Overregulation is particularly damaging to small businesses, which lack the scale to shoulder compliance costs that large firms possess. A recent report from the Pacific Research Institute ranked all 50 states according to the regulatory burdens they place on small business. North Carolina fared somewhat worse than the national average, ranking 31 overall. Our worst category was occupational licensing, where North Carolina ranked 43rd. We require far too many professionals to get permission from state regulators to do business, and the licensure requirements cost far too much. South Carolina, by comparison, got the highest rank in the country on occupational licensing.
Another problem area is energy regulation, where North Carolina ranked 42nd. It’s the only state in the Southeast that forces customers to purchase high-cost alternative energy such as wind and solar. We can also do better on paperwork burdens. North Carolina ranked 39th on the filing costs for opening a new business. Tennessee, Virginia, Georgia, and Florida all fared better in this category.
To embrace the need for more regulatory reform is not to reject the value of state regulation altogether. Government has a clear role to play in protecting the “commons” — the air and water resources we all use. Government should also combat fraud, which requires a combination of regulatory and judicial institutions.
North Carolina is headed in the right direction. To keep the momentum going, let’s do more to reduce the indirect but costly taxes that are embedded in overregulation.