Balancing taxes, spending and growth

Date posted: August 7, 2013

The N.C. General Assembly has had a full plate this session. They have considered the state budget, state taxes and policies to promote economic growth and jobs. N.C. State University economist Mike Walden considers how these issues are tied together.

“I think a lot of what has been driving this debate, in my opinion, has been the concern about the growth rate of the state economy — the fact that we’ve not totally recovered the jobs we lost during the recession. We still have a very high unemployment rate. And there’s been a focus of looking at the structure of our tax system in talking about, perhaps, changing tax rates, changing what we tax and whether that will actually result in the economy growing faster. And this is a big, big, big topic.

“A lot of research on this, unfortunately, the research is not straightforward in suggesting absolutely what will work. But at the same time, if you’re going to change state taxes and therefore change state revenues, that means you’re probably going to affect how much money the state has to spend and where it can spend … that money.

“And we do know that certain kinds of state spending clearly are linked to economic growth. If you look over the long run, we can see that states have invested relatively more in education and highways, for example, (and) other infrastructure. You may find a link between those kinds of spending and economic growth.

“So the point here is that it’s like a balloon: If you punch in one side, another side’s going to go out. If you change the tax system, change revenues, you may very well change state spending. All of that comes back to impact state economic growth.”

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