Courtesy of Mish.
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. …
