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Education looks to a Goldilocks tax system

A taxing dilemma hovers over the teacher pay-and-pipeline issue, over the expansion of early childhood education, and over the multiple demands of providing to North Carolina youth their constitutional right to a sound basic education.

It’s surely too late in the current legislative cycle to expect a sharp turn from the tax-and-budget policies that have given rise to incremental teacher pay raises, as welcome as they are in the short-run. Still, as voters focus their attention on the future in an election year, it’s important to consider how those policies have consequences, constraining the state’s capacity to enhance teaching as a career and to elevate student academic achievement to thrive in the 21st century economy and society.

The contours of the taxing dilemma were neatly summarized in the weekly email newsletter from the governor’s office a week ago. In one section, it boasted that teacher pay had risen faster in North Carolina than any other state over the past two years – as the post-recession recovery has brought in revenue above budgeted projections. In another section, it also boasted that a national survey of CEOs had ranked North Carolina “the third best state for business for the second year in a row.”

The governor attributed the ranking to $4.4 billion in tax relief to individuals and businesses, as well as to his administration’s economic development efforts and the recasting of unemployment insurance that benefitted employers that pay into the system.

So to what extent have the now-dominant budget-and-tax policies stimulated North Carolina’s economy? Where was North Carolina ranked before the Republican-majority General Assembly, along with the governor, cut taxes?

The governor’s newsletter linked to Chief Executive magazine, which surveyed 513 CEOs for its “best and worst states for business’’ feature. North Carolina placed third after Texas and Florida. In fact, the 2010 survey, taken before McCrory was elected, and before Republicans assembled as the legislative majority in 2011, North Carolina ranked second.

The commentary in Chief Executive says that business leaders “favor fewer regulatory encumbrances” and report that “most remedies dangled by politicians only make things worse.” The magazine also reports that “CEOs indicate that the quality of workforce is just as important – in some cases more important – than the tax environment.” Of course, the quality of a workforce is largely a function of the public education and job-training systems of a state and its localities.

Forbes magazine, a generally conservative, pro-business publication, also produces a “best states for business’’ analysis, using a different, more statistics-based methodology. A decade ago, when the state had a Democratic-majority legislature and Democrat Mike Easley in the governor’s office, Forbes ranked North Carolina third. Forbes places North Carolina second in 2016. The state has ranked in Forbes’ top five for 10 years.

It appears, therefore, that North Carolina had qualities attractive to businesses prior to the sharp shift in tax-and-budget policies enacted over the past five years. Those qualities arose from a combination of private and public investments, not the least in its public schools, colleges, and universities.

And yet, in North Carolina, across the South, and in Congress, day-to-day governance reflects a huge political-philosophical divide – between policymakers who favor cutting taxes and small-as-possible government and those who favor enough revenue to support a public sector robust enough to address education and other societal needs that capitalism doesn’t or can’t.

That divide has roots that trace back to the Reaganomics of the 1980s – though today’s Republicans don’t remember that Ronald Reagan helped enact a $1 billion state tax-increase package when he was governor of California and that as president he supported a tax increase when it became evident that the deficit deepened after his first-year tax-and-budget cuts. In the years since, Republican candidates have come under pressure to sign the pledge not to raise marginal tax rates for individuals and business. Over time, the tax-and-budget rationales employed by Republican policy makers have hardened into articles of faith, seemingly resistant to further evidence.

A lot of voters, Republicans and Democrats, agree that teachers should be paid more, and there’s bipartisan support for expanding early childhood education and to bring schools fully into the digital age. At issue now is whether North Carolina can work its way back to the so-called “Goldilocks principle’’ – not too big, not too small, but just right – in fashioning a tax system that keeps North Carolina economically competitive as it raises sufficient revenue to advance an equally competitive education agenda.

Ferrel Guillory

Ferrel Guillory is the Director of the Program in Public Life and Professor of the Practice at the UNC Hussman School of Journalism and Media, and the Vice Chairman of EducationNC.