Excessive Tax Cuts Hurt Kids, Don’t Grow Economy

May 2017

Post Author

By Michelle Hughes

NCChild15Since the onset of great recession, North Carolina has experienced tremendous funding reductions for children’s health, education, and safety. While the initial catalyst for these cuts was the recession’s impact on the state budget, ongoing tax cuts by the General Assembly have undermined our ability to reinvest in the public services that build opportunity for children and families.

Now, the North Carolina Senate has passed its biggest tax cut yet—a one billion dollar package that will primarily benefit upper-income earners.

The justification behind these tax cuts has always gone something like this: the economy will thrive in a low-tax environment, providing parents with more lucrative employment opportunities and with the ability to keep more of what they earn.

We need to be darn sure that this strategy works if its inevitable byproduct is reduced funding for investments that assure children’s health, education and safety, like early childhood education, child protective services, and public schools.

So what does history tell us about this strategy?

It shows that tax cuts aren’t very effective at producing economic growth. A six-decade study by the Congressional Research Service found that cutting tax rates “have had little association with saving, investment, or productivity growth.” A 2012 article in The Atlantic included this simple, but effective analysis:

In 1990, President George H. W. Bush raised taxes, and GDP growth increased over the next five years. In 1993, President Bill Clinton raised the top marginal tax rate, and GDP growth increased over the next five years. In 2001 and 2003, President Bush cut taxes, and we faced a disappointing expansion followed by a Great Recession.

Does this story prove that raising taxes helps GDP? No. Does it prove that cutting taxes hurts GDP? No.

But it does suggest that there is a lot more to an economy than taxes, and that slashing taxes is not a guaranteed way to accelerate economic growth.

 If big tax cuts don’t grow the economy AND they hurt children, then let’s abandon that strategy. We hope the NC House of Representatives will reject the Senate tax plan, so we can focus on investing in our children and families.