RALEIGH — North Carolina’s latest record-breaking unemployment numbers and recent projections of slow economic growth should prompt the state’s elected leaders to rethink their tax and spending policies. That’s the recommendation of the John Locke Foundation’s chief budget analyst.
Click here to view and here to listen to Joseph Coletti discussing North Carolina’s latest unemployment data.
“Not only have we hit a new unemployment peak — we’ve had 11 straight months of double-digit unemployment in North Carolina, and the state has fared worse than the national average for more than a year,” said Joseph Coletti, JLF Fiscal Policy Analyst. “Those numbers alone should convince the governor, her budget advisers, and state lawmakers that now is a good time to shift gears in setting the state’s budget and tax priorities.”
“And unemployment data aren’t the only numbers that should raise red flags about the state’s current policies,” Coletti added. “Economists inside and outside state government have projected no more than a slow rebound in 2010 from the recent recession. Current policies based on government overspending, uncompetitive tax rates, and overregulation simply add to the sluggishness that’s slowing economic growth.”
The N.C. Employment Security Commission’s latest report lists the state’s unemployment rate at 11.2 percent for December, up four-tenths of a percentage point from the November rate of 10.8 percent. The rate had been stuck in a range from 10.7 percent to 11.1 percent for nearly a year. The 11.2 percent rate is the highest level for unemployment since the economic downturn started. North Carolina now ranks No. 8 in the nation in unemployment.
North Carolina has reported an unemployment rate of at least 10 percent every month since February 2009. The rate previously peaked at 11.1 percent in May, according to the ESC.
Lingering unemployment woes are hurting North Carolina at a time when the economic outlook is less than rosy, Coletti said.
“The General Assembly’s own budget forecaster has warned lawmakers that collections of ‘key economy-based taxes’ are running well below budget targets,” he said. “With an increase in the state sales-tax rate, the General Assembly expected a double-digit increase in sales tax collections. The actual increase is barely over half that amount. Payroll withholding taxes are also lower than expected. That’s an indicator that many firms still have not started hiring again.”
“Economists John Connaughton of UNC-Charlotte and Mike Walden of N.C. State have agreed with legislative analysts’ general idea that job growth is unlikely to pick up speed before the second half of 2010,” Coletti added. “In the meantime, harmful government policies will continue to hinder entrepreneurs and business owners who are wary of adding jobs in this uncertain economic climate.”
State government can take steps that would improve economic conditions, Coletti said. “We’ve seen that increased government spending clothed in the name ‘stimulus’ has done nothing to improve the unemployment picture,” he said. “Perhaps lawmakers will consider another path: limit spending to essentials, lower tax rates, and reduce burdensome regulations. Those steps would prompt entrepreneurs and investors to step off the sidelines and help the economy grow again.”
Seasonally adjusted employment decreased in December by more than 31,00 workers to a total of 4.01 million, according to the ESC. Unemployment increased by 19,000 workers, with more than 505,000 workers now listed as unemployed. Unemployment has increased by more than 136,000 people in the past year. The state rate in December 2008 was 8.1 percent.
Now is the time for state leaders to scrap policies that rely on government to spend its way out of an economic slump, Coletti said. “Current response to the poor economy has focused on government spending,” he said. “The problem with that approach is that government has to take money out of the private sector before it can spend the money on its pet projects. In other words, government can redirect use of existing resources but cannot take steps that actually grow the economy.”
Private-sector business owners and entrepreneurs will generate real economic growth and increased employment, Coletti said. “The question is: Will government stand in the way?” he asked. “By overspending, maintaining tax rates that are higher than those in neighboring states, and burdening businesses with too much regulation, government places obstacles in the path of economic growth. It’s time to remove some of those obstacles.”
For more information, please contact Joseph Coletti at (919) 828-3876 or jcoletti@johnlocke.org. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or mkokai@johnlocke.org.