State’s efforts at tax reform can set example for nation

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Thom Tillis

By Thom Tillis, U.S Senator (R-NC)

WASHINGTON, DC — As President Trump and Congress work on America’s first major tax reform in decades, Democrats are already claiming the GOP plan will bury the middle class and tank the economy. These are old talking points, and false. To get a sense of what a successful tax reform can do, look no further than my state, North Carolina.

In 2013, when I was speaker of the state House, North Carolina passed a serious tax-reform package. It was based on three simple principles: simplify the tax code, lower rates, and broaden the base.

We replaced the progressive rate schedule for the personal income tax with a flat rate of 5.499 percent. That was a tax-rate cut for everyone, since the lowest bracket previously was 6 percent. We also increased the standard deduction for all tax filers and repealed the death tax.


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We lowered the 6.9 percent corporate income tax to 6 percent in 2014 and 5 percent in 2015. Subsequent reductions were subject to a unique “safety valve,” which would trigger further tax cuts only if the state hit its targets for tax revenue. Since those targets were easily met, North Carolina’s corporate tax fell to 3 percent in 2017 and is on track for 2.5 percent in 2019.

We paid for this tax relief by expanding the tax base, closing loopholes, paring down spending, reducing the cost of entitlement programs, and eliminating “refundable” earned-income tax credits for people who pay no taxes.

The results over the past four years have been impressive by any standard. The Tar Heel State has gone from having the least competitive tax code in the region to having one of the most competitive in the nation, according to the nonpartisan Tax Foundation. More than 350,000 jobs have been created, and the unemployment rate has been cut nearly in half. The state’s economy has jumped from one of the slowest growing in the country to one of the fastest growing. Survey after survey cites North Carolina as one of the best states in which to run a business.

While overhauling North Carolina’s tax code now seems like a no-brainer, at the time it was difficult and highly controversial. Republicans controlled the governor’s mansion and both houses of the General Assembly, but there were disagreements within the GOP on how to implement tax reform. The key to success was keeping all options on the table until the full effects could be modeled. While heated debates occurred during the negotiations, lawmakers always pulled themselves back to shared principles. We made compromises and achieved consensus.

When droves of lobbyists and special interests were rushing to state legislators’ offices with their wish lists of exemptions, we made it clear that guerrilla tactics would not be well received and that our commitment to consensus was steadfast. To address the conflicting priorities of different industries and businesses, we engaged North Carolina’s tax professionals and chief financial officers to assess how our reform would affect their companies. Taken as a whole, they were pleased.

Meanwhile, a well-mobilized opposition on the left stoked fears that tax reform would cause shrinking state revenues and require massive budget cuts. This argument has been proved wrong. State revenue has increased each year since tax reform was enacted, and budget surpluses of more than $400 million are the new norm. North Carolina lawmakers have wisely used these surpluses to cut tax rates even further for families and businesses, to increase education funding, to raise teacher pay, and to replenish the state’s rainy-day fund.

In the end, the political disagreements, tense negotiations, and pleading from special interests were only bumps in the road. North Carolina is proof positive that successfully enacting tax reform reaps tremendous rewards: more growth, more jobs, more businesses and more revenue.

Republicans in Congress want tax reform to do the same for all of America, but they face a similar set of challenges. Policy differences must be worked out between GOP lawmakers, which will require a commitment to discipline and consensus-building that is sometimes lost on a small minority of our party. An army of lobbyists on K Street will descend upon Capitol Hill like a horde of zombies, seeking special carve-outs. Democrats, led by the dynamic duo of “Chuck” and “Nancy,” are voicing new concern about federal spending while demanding revenue neutrality—a hypocritical change of tune after they ran up historic deficits the last time they were in power.

Yet I know Washington can succeed in this effort. North Carolina has shown that although tax reform may be difficult, it isn’t all that complicated. The American people have been waiting for a better tax code for decades, and virtually every Republican officeholder in Washington was elected with a promise to enact one. Tax reform would help spur job creation and cement American competitiveness in the 21st-century global economy. Congress has every reason to get it done—and no excuses not to.

Editor’s note: This commentary by Sen. Tillis first appeared in the Sept. 21, 2017, print edition of the Wall Street Journal.

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