JOHN HOOD: Time to change direction
John Hood
RALEIGH – Call me a nerd (I’ve heard worse) but I spend lots of time looking at economic, fiscal, and social statistics. For North Carolina, the latest data don’t paint a pretty picture.

The state’s jobless rate of 11 percent is one of the highest in the country. The problem is far more severe in communities such as Burlington (13 percent), Rocky Mount-Wilson (14 percent), Hickory-Morganton (15 percent), Lenoir (16 percent) and Laurinburg (17 percent).

Unfortunately, North Carolina isn’t just experiencing a painful moment in an otherwise progressive time. For longer that much of the state’s political and business leadership would care to admit, North Carolina has lagged the rest of the Southeast and often the rest of the country on a variety of key indicators.

Since 2000, for example, North Carolina’s per-capita income has risen 27 percent compared to 49 percent for the Southeast and 33 percent for the nation as a whole. North Carolina’s population and employment grew faster than the national average, it is true. But we added significantly fewer jobs from 2000 to 2007 than most of our regional competitors did. Depending on the measure one chooses, Southern states such as Virginia, Texas, Florida, and Tennessee have outperformed North Carolina in economic growth either modestly or decisively during the past decade.

This is not what most North Carolina leaders are used to hearing – and is certainly not what they are used to telling the public. Despite our state’s early reputation as a vale of humility between two mountains of conceit, all too many of our state’s politicians have been boastful and self-deluded. They’ve come to believe their own press releases and marketing slogans.

As a result, North Carolinians have been surprised by the sudden, sharp downturn in the state’s economy over the past year. I think that’s a major reason why, in the latest Civitas Institute poll, only 30 percent of North Carolina voters approved of Gov. Beverly Perdue’s job performance. Sure, some voters have specific reasons to disapprove of Perdue’s tax and spending policies. But I think many voters are dismayed at their state’s declining fortunes and looking for someone to blame. The new governor will suffice.

There is no single cause of North Carolina’s economic plight. I’ll be the first to admit that. It is likely, however, that the state’s relatively high marginal tax rates have played a role in weakening the state’s competitiveness and discouraging some entrepreneurs from starting or expanding businesses here.

It’s not simply the average tax burden that matters, though North Carolina’s tax burden is now slighter higher than the national average when measured correctly (as a share of personal income). The structure of the tax code matters more. By levying relatively higher marginal tax rates on personal and corporate income, North Carolina erects barriers to economic growth that aren’t present in faster-growing Southern states.

In choosing its higher-tax, higher-spending fiscal philosophy, North Carolina’s political class embraced an alternative model for economic development based on the notion that spending more money on education, particularly higher education, would pay off in higher incomes and job creation. Empirically, this notion is false. After a promising start in the early 1990s, North Carolina’s educational progress essentially ground to a halt by the end of the decade. As for higher education, it soaks up a significantly larger share of state spending in North Carolina than in other states but we don’t produce a significantly higher share of college graduates.

Through massive subsidies, state government has engineered a transfer of income from average taxpayers to affluent faculty, administrators, and graduating professionals – and from both rural and urban communities to college towns. But operating this redistributionist system so as to engineer in a real gain in the productivity of the state’s workforce, and thus in rising incomes and opportunities, has proven challenging, to say the least.

North Carolina needs a new direction. That doesn’t necessarily mean that the state needs new leadership. But if the political class continues to be wedded to its outdated perceptions and discredited assumptions, its hold on power will end.

• John Hood is president of the John Locke Foundation and publisher of
© 2009