In 2013, North Carolina figured out paying people to not work is a losing
policy.
N.C became the first state to reject “free” federal payments for
extended unemployment benefits and reduce the weeks of benefits to 20 from
26. It also passed big tax cuts.
Huge Payoff
The result was phenomenal as reported by Stephen Moore, senior fellow at the
Heritage Foundation in the Wall Street Journal article: The Tax-Cut Payoff in Carolina.
Four years ago North Carolina’s unemployment rate was
above 10% and the state still bore the effects of its battering in the
recession. Many rural towns faced jobless rates of more than 20%. But in 2013
a combination of the biggest tax-rate reductions in the state’s history and a
gutsy but controversial unemployment-insurance reform supercharged the
state’s economy and has even helped finance budget surpluses.
The tax cut slashed the state’s top personal income-tax rate to 5.75%, near
the regional average, from 7.75%, which had been the highest in the South.
The corporate tax rate was cut to 5% from 6.9%. The estate tax was
eliminated.
Next came the novel tough-love unemployment-insurance reforms. The state
became the first in the nation to reject “free” federal payments for extended
unemployment benefits and reduce the weeks of benefits to 20 from 26. The
maximum weekly dollar amount of payments, $535, which had been among the
highest in the nation, was trimmed to a maximum of $350 a week. As a result,
tens of thousands of Carolinians left the unemployment rolls.
While these measures were passing the legislature, the state capital boiled
over with rancorous political rallies, called Moral Mondays, designed to
block the “cruel” GOP agenda. Rev. William Barber II, one of the protest
organizers, lambasted Republicans for making the Tar Heel State a “crucible
of extremism and injustice.” The national media piled on with claims that the
Republican agenda cut taxes for the rich while slashing benefits for the
poor.
Then a funny thing happened. After a few months, the unemployment rate
started to decline rapidly and job growth climbed. Not just a little. Nearly
200,000 jobs have been added since 2013 and the unemployment rate has fallen
to 5.5% from 7.9%.
On the Tax Foundation index of business conditions, North Carolina has been
catapulted to 16th from a dismal 44th since 2013.
The most recent news will make many other governors jealous. The state didn’t
take the extra federal benefits—which require repayments later to the
feds—and it cut the weekly benefits. So the state government has been able to
pay back $2.8 billion in unemployment-insurance money owed to the feds, and
it now has a trust-fund surplus. This means it will be able to provide
employers with at least $500 million in cuts from the state and federal
unemployment tax on payroll over 18 months.
This comes at a time when other states are having to raise payroll taxes to
pay off the loans for the rich benefits they doled out in the recession and
its aftermath. The lesson: Handouts from the feds are never free.
An even bigger surprise—even to supporters—is the tax cut’s impact on
revenue. Even with lower rates, tax revenues are up about 6% this year
according to the state budget office. On May 6, Gov. McCrory announced that
the state has a budget surplus of $400 million while many other states are
scrambling to fill gaps.
The story gets better. Because North Carolina built in a trigger mechanism
that applies excess revenues to corporate-rate cuts, the business tax has
fallen to 5% from 6.9%, and next year it drops to 4%.
Lesson for Illinois
Tax cuts, workers' comp reform, and other business-friendly measures are the
way to growth.
Instead, Illinoisans suffer from high taxes, untenable pension promises,
inane union work rules, and workers' comp rules that collectively drive
businesses away.
Worker's Comp Reform Dies in Illinois Senate
Let's put a spotlight on the need for workers' comp reform and why it's
important for businesses in Illinois.
On May 29 Workers' Comp Reform Defeated in Illinois Senate.
An amendment to SB 997 filed by Senate GOP Leader
Christine Radogno would finally address Illinois’ causation standard under
our worker’s compensation law. Currently, the workplace could be less
than 1% the cause of a worker’s injury yet the employer is on the hook for
all costs. Under Governor Rauner’s plan, the workplace would have to be the
primary cause, or 50% at fault, for the employees’ injury.
The owner of a trucking firm located near the Indiana border testified that
his work comp costs are $325,000 higher in Illinois than Indiana. The
owner of a steel fabricator said he would save $106,000 in work comp costs if
he moved to Indiana. A site selector, who works with businesses who want to
either move or expand, said due to our work comp costs Illinois is always
being cut from the short list of places to look at.
Despite these compelling arguments, Democrat members of the Judiciary
committee vote against the bill mostly citing their concerns about the
process and lack of vetting of the legislation.
Why Illinois Job Growth Lags
High taxes, demand for still more taxes, and inane work rules cause Illinois
businesses to flee the state when they can.
Job growth lags precisely because Illinois is a poor state in which to
conduct business.
The Illinois Policy Institute, Governor Rauner, and the National Federation
of Independent Business (NFIB) want to address these issues.
Unfortunately, all reforms die in the same place: an Illinois legislature
controlled by House leader Mike Madigan and Senate President John Cullerton.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
