How government makes healthcare more expensive; and what we can do to reverse it
“Cut to the bone”? State budget has grown four times as fast as population since 1989
A comparison: North Carolina’s state budget, then vs. now
DPI: Average NC teacher salary hits $54,682, second highest in the Southeast
As we head into a new decade, now is a good time to reflect on how changes in public policy over the past decade have enhanced life in North Carolina. Our thoughts also naturally gravitate to how we can best apply these lessons for the future.
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 top personal income and corporate tax rates in the Southeast.
After strong economic growth in the 1980s and 1990s, North Carolina’s personal income growth fell below the national average between 2000 to 2010. By the end of the new century’s first decade, the unemployment rate in North Carolina was a full percentage point above the national average, and at 10.6 was 8th highest in the nation.
Despite one of the heaviest tax burdens in the nation, North Carolina’s state budget was a mess. The Great Recession exposed decades of reckless spending binges, an irresponsible refusal to build up a rainy day fund, and the unsustainable nature of the old tax and spend policies. Multi-billion-dollar shortfalls caused legislators to panic, and hike taxes on citizens still further.
The tax hikes were still not enough. Teachers went three straight years without a pay raise (2010 thru 2012). Average teacher salaries fell to 46th in the nation. The state budget faced massive shortfalls rising to nearly $3 billion in 2010.
Speaking of education, in 2010 North Carolina still enforced a draconian cap of 100 charter schools, despite the demands of parents and long waiting lists. Only the wealthy had the option to place their child in a learning environment they felt best met their child’s needs. If a child attended a failing school, they had few if any options.
The absence of voter ID requirements – the norm in the majority of states – made Election integrity an issue.
2010 also marked the passage of the landmark Obamacare bill, which included an option for states to expand their already over-crowded and budget-busting Medicaid programs. North Carolina’s political Left quickly hopped on board with the idea.
How things have changed in the last ten years.
data from 2010 unless otherwise indicated
2020 data, or otherwise latest data available
|Business tax climate: Ranked 11th worst in nation in 2010, 7th worst in 2012||After 2013 tax reforms, jumped immediately to 17th best, is now 15th best|
|Unemployment rate: 10.6%, 8th highest in nation||Currently 3.7%, tied for only 16th highest|
|Jobs: NC had lost 1.25% of its jobs in the decade prior to 2010||711,000 jobs created since Jan. 2011; a growth rate of 18.3%, exceeding the national ave. rate of 16.5%|
|Median household income: Falling further behind national average, growing only at 14.4% from 2000 to 2010, compared to 17.4% for the nation||Since the historic 2013 tax reforms, median household income grew by 29.5% from 2013 to 2018, significantly outpacing the national average of 21.6% and the Southeast region’s 23.1%|
|Poverty rate: 17.4%, 9th highest in nation||13.1%, tied for only 13th highest|
|Personal income tax: Tops out at 7.75%, highest in SE and 11th highest in nation||Flat rate of 5.25%, lowest among SE states that levy one, and only 25th highest nationally|
|Corporate income tax rate: 6.9%, highest in SE||2.5%, lowest among all states that levy one|
|Statewide sales tax rate: 5.75%||4.75% – the reduction saving North Carolinians more than $1 billion every year|
|Budget growth: 40% in eight years||16% budget growth over eight years|
|Massive budget shortfall of roughly $3 billion in 2010||On pace for sixth straight budget surplus, most in excess of $400 million|
|State debt: Topped out at $6.5 billion in 2013 after ballooning by an alarming 230% since 2001||In contrast, from 2013 to 2019, state debt steadily dropped from $6.5 billion to $4.2 billion, a 35 percent reduction|
|Rainy Day Fund: $150 million||Currently at $1.2 Billion|
|Teacher pay: three straight years without a pay raise (2010 -2012)||Teachers have received five consecutive pay raises, but Gov. Cooper vetoed a sixth in 2019|
|Average teacher salary: 46th in the nation||NC now ranks 29th in average teacher pay|
|Charter schools: capped at 100||173 charter schools now educating children, thanks to 2011 law eliminating the cap|
|School choice: No programs provding funding for low-income families||9,000+ children enrolled in private schools of their choice, courtesy of Opportunity Scholarship program|
The fall 2010 elections ushered in a Republican majority in both the House and Senate for the first time since 1870.
One of the new majority’s top priorities was to pass legislation declaring the state’s opposition to the Obamacare Medicaid expansion, which they did in 2013, with the approval of new Republican governor Pat McCrory. In so doing, the state has avoided adding up to half a million able-bodied, childless adults into a program already stretched too thin, which would divert scarce medical resources away from the more needy traditional Medicaid population.
Lessons from states like New York, with its $4 billion Medicaid shortfall, and Louisiana with its rampant fraud in the expansion population, are but two of many examples demonstrating that North Carolina was wise to avoid this fiscal train wreck.
Moreover, the 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 2013 reforms, that ranking shot up to 17th best. Continued tax cuts have enabled our state to climb to 15th best in 2020.
Over the past decade the top personal income tax rate in North Carolina declined from 7.75 percent to 5.25 percent. Meanwhile, the standard deduction has increased, exempting 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 changes worked. The resulting economic improvements have been remarkable.
- Unemployment is down. Today (as of Feb. 2020), North Carolina’s unemployment rate is just 3.8 percent, nearly identical to the national 3.6 rate, and only 17th highest, compared to 8th highest back in 2010.
- Household income is up. 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.
- GDP continues to grow. According to the Raleigh News & Observer, from the fourth quarter of 2013 through the second quarter of 2019, North Carolina’s gross domestic product (GDP) rose by 27.2 percent, better than the national average rate of 26.1.
- Budget surpluses – not budget deficits – have become the norm. Pro-growth tax policies, plus more responsible budgeting decisions, have led to five consecutive state budget surpluses, each totaling in the hundreds of millions of dollars. Prudent spending restraint allowed the legislature to build up the state’s rainy day fund to a record $1.9 billion prior to 2018 Hurricane Florence, a fund that still stands at $1.2 billion today (March 2020).
Such responsible savings puts North Carolina in a far better position to withstand the fiscal shock of the next recession, compared to the previous irresponsible leadership that left North Carolina so financially vulnerable to the last recession.
Thanks to education reforms over the last several years, one in five North Carolina children are able to choose a better education. Rather than be trapped in the district school assigned to them by their zip codes, many families are now able to choose the best education option, based on the child’s needs. Thanks to 2011 legislation eliminating the state’s cap on charter schools, 173 charter schools provide children the chance at a better education. And today more than 9,000 children receive Opportunity Scholarships from a program passed by the legislature in 2013, which provides a voucher for low-income families to attend a private school of their choosing.
Additionally, 2013 saw the enactment of a similar program (Tax Credit Scholarship) targeted at disabled students. The program, since transitioned to a grant program, now enrolls more than 1,500 children. In 2017, the legislature approved an Education Savings Account for special needs children. These two programs for special needs children will combine into one program later this year.
The impact of these changes can be far-reaching. The opportunity for a child to attend a charter or private school consistent with a child’s interest or abilities can be life changing.
Imagine the difference in the life of a special-needs child, or a child who had been bullied at their assigned district school, when given the opportunity to access educational options that best serve their unique needs.
North Carolina has also made progress on protecting the integrity of our elections. In 2018 the voters of North Carolina overwhelmingly approved a constitutional amendment to require a voter ID to cast a ballot. The measure had been approved to be put on the ballot by the legislature earlier that year.
Voter ID has for years been perhaps the most popular public policy idea in North Carolina politics. The October 2018 Civitas statewide poll showed support for a voter ID amendment by a wide 61 to 34 margin. One would be hard pressed to come up with another measure with such universal, bi-partisan support among voters.
Disappointingly, however, the voter ID law is being held up in the courts. A January injunction delayed the voter ID requirement beyond the spring primary season. And a February injunction puts the voter ID requirement for the general election at risk.
A Better Carolina
While the gains of the past decade have been significant, there is still plenty of opportunity for improvement. To make that a reality, the Civitas Institute has developed five key priorities to guide reform, a package of policy recommendations we’ve entitled “A Better Carolina.”
When we envision North Carolina’s future, we want citizens to imagine a state where….
- Families can access educational options of their choice, and local school systems are given more autonomy
Families – not bureaucrats ― are in control of their children’s education. All North Carolina families are empowered to choose the education that best fits their children’s needs. Further, local school systems need more flexibility in terms of school calendars, funding and the option to reward excellence with reforming teacher pay.
- A fair tax code eliminates political favoritism and encourages jobs and growth
North Carolina treats all businesses the same by eliminating the corporate tax and ends corporate welfare schemes that encourage corruption and allows politicians to pick winners and losers in the economy. Job creators receive fair treatment and North Carolinians benefit from a business climate that promotes jobs and opportunities for all, not just the politically connected.
- Healthcare freedom is encouraged
Healthcare providers are freed from restrictions to provide more access to affordable care, while consumers have more insurance options for their unique health and financial needs. And care for the neediest on Medicaid is not crowded out by working-age, childless adults.
- Fair, accountable elections are the foundation of our democracy
Voters do not have their ballots cancelled by illegal voting. North Carolina protects the integrity of elections.
- Property rights are protected
The primacy of individual property rights is respected,
cultivates human flourishing, and helps to curb Government overreach. Property rights are the backbone of a free
society. When property rights erode, freedom dissolves.
 Bureau of Labor Statistics, figures from Feb. 2020; before Gov. Cooper’s March Executive Order shutting down “non-essential” businesses
 U.S. Census Bureau; Current Population Survey, Table H-8 Median Household Income by State
 State of North Carolina, Office of State Controller. General Fund Monthly Financial Report, March 2020.