North Carolina’s Economic Decade of Success | Beaufort County Now

North Carolina’s economic and fiscal health is riding a decade of success. civitas, economy, decade of success, NC economy, april 6, 2020
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North Carolina’s Economic Decade of Success

Publisher's note: This post, by Brian Balfour, was originally published in Civitas's online edition.

    North Carolina's economic and fiscal health is riding a decade of success. After decades of reckless and unsustainable spending binges, the fall 2010 elections ushered in a Republican majority in both the House and Senate for the first time since 1870.

    The changes have been striking. Tax reforms have made the state much more friendly to job-creators, resulting in far more robust economic gains compared to the previous 10 years under prior leadership.

    Wise, fiscally responsible budgeting has reined in the previous legacy of out-of-control spending growth that was coupled with a high tax burden. State debt has been falling while savings set aside for natural disasters and economic downturns have been built up, putting the state on a much stronger financial footing in anticipation of the next, inevitable recession.

    To get a complete picture of just how transformative the last 10 years have been, we can contrast past and current legislative policies and results.

    Business Tax Climate

    Then: In 2010, North Carolina was home to one of the worst business tax climates in the nation. North Carolina ranked a lowly 39th and imposed the highest personal income and corporate tax rates in the Southeast.

    Now: Historic tax reforms of 2013, along with subsequent improvements, transformed North Carolina from one of the worst states to do business to one of the best. At the time of the 2013 reforms, the Tar Heel state was burdened with the 7th worst state business tax climate in the nation, according to the Tax Foundation. Immediately after the reforms, North Carolina's ranking shot up to 17th best. Continued tax cuts have boosted our state to 15th best in 2020.

    Tax Rates

    Then: North Carolina imposed a multi-tiered, progressive personal income tax topping out at 7.75 percent in 2010. The top rate was highest in the Southeast and tied for 11th highest nationally.

    The state's corporate income tax rate of 6.9 percent was also highest in the Southeast.

    An additional 'temporary' sales tax of 1 percent statewide was in effect, costing taxpayers about $1 billion per year.

    Now: Today the state features a flat personal income tax rate of 5.25 percent, the lowest in the Southeast among states that levy one, which ranks only 25th highest nationally. Moreover, a larger standard deduction exempts more low-income workers from having any state tax liability at all. "More than 1.5 million working families in North Carolina owe no income tax on their earnings now that the state's standard deduction has tripled," reported House Speaker Tim Moore's office in April 2019.

    The current corporate income tax rate of 2.5 percent is the lowest among states that impose one.

    In 2011, then-Gov. Bev Perdue's (D) plan to make permanent 75 percent of her 'temporary,' one-cent sales tax was rebuffed by the legislature, which overrode her budget veto. The statewide sales tax has remained at 4.75 percent since.

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    Unemployment Rate

    Then: In 2010 the unemployment rate in North Carolina was a full percentage point above the national average, and at 10.6 percent was the 8th highest rate in the nation.

    Now: North Carolina's unemployment rate currently stands at 3.7 percent, nearly identical to the national rate of 3.5 percent rate, and tied for only 17th highest. (Dec. 2019 BLS figures)

    Job Growth

    Then: In the decade leading up to 2010, job growth in North Carolina was anemic. From Jan. 2001 to Dec. 2010, the number of employed North Carolinians declined by 1.25 percent, only slightly better than the national decrease of 1.4 percent.

    Granted, the Great Recession erased a lot of job gains. To be fair, we can look at job growth for the decade leading up to the high point of employment before the crash, which was Feb. 2008. That stretch saw job growth of 12.3 percent.

    Now: From Jan. 2011 to Dec. 2019, North Carolina's economy has added more than 711,000 jobs, good for a job growth rate of 18.3 percent. North Carolina outpaced the national average rate of 16.5 percent.

    Income Growth

    Then: In 2010, North Carolina was falling further behind the national median household income. From 2000 to 2010, North Carolina's median household income grew by 14.4 percent, slower than the national rate of 17.4 percent. As a result, the Old North State's median household income fell from 91.3 percent of the national average in 2000 to 88.9 percent in 2010.

    Now: Household income is up since the historic 2013 tax reforms. North Carolina's median household income grew by 29.5 percent from 2013 to 2018, significantly outpacing the national average of 21.6 percent and the Southeast region's average of 23.1 percent.

    Poverty rate

    Then: In 2010, North Carolina's poverty rate was 17.4 percent, 9th highest in the nation.

    Now: After ballooning as high as 18.6 percent in 2012 (tied for 10th highest) as a result of the Great Recession, conservative fiscal policy reforms helped lower the poverty rate to 13.1 percent in 2018 (latest data available). This rate enabled North Carolina to improve somewhat to become tied for 13th highest in the nation.

    State Budget Growth Trends

    Then: In FY 2009-10, North Carolina's state budget had climbed by 40.5 percent in the previous eight years.

    Now: The FY 2018-19 state budget marked just a 16 percent increase over the previous eight years under new leadership.

    Rainy Day Fund

    Then: Even in June 2008, before the Great Recession put pressure on the legislature to dip into reserves, the Rainy Day fund was only $786 million. By June of 2010, at the close of the 2009-10 fiscal year, the state's Savings Reserve Account (i.e., "Rainy Day fund") sat at a paltry $150 million.

    Now: Prudent spending restraint allowed the legislature to build up the state's Rainy Day fund to a record $1.9 billion before Hurricane Florence in 2018, a fund that still stands at $1.2 billion today.

    State Debt

    Then: From 2001 to the peak in 2013 when the legislature implemented significant pro-growth tax cuts, North Carolina General Fund, net tax-supported debt grew from $2.8 billion to $6.5 billion, an alarming growth rate of 230 percent.

    Now: In contrast, from 2013 to 2019, total net-tax supported debt has steadily dropped from $6.5 billion to $4.2 billion, a 35 percent reduction. Stated differently, this debt fell from roughly $660 per person to $385 per person.

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