Are you smarter than a 5th grader? Not if you believe Gov. Beverly Perdue’s claim that the budget plan just passed by the North Carolina House would result in a mass layoff of 30,000 government employees.
You see, by 5th grade most students have mastered basic reading and math. As such, they would not have committed the egregious errors that led the governor and her staff to embarrass themselves with such a ridiculous claim. Instead, they would have readily discerned the critical differences between positions lost and people laid off (reading) and between gross and net (math).
Even Gov. Perdue recognized the differences when she announced her budget plan earlier this year. She said at the time that her General Fund budget of $19.9 billion would result in the elimination of 10,000 positions, but that most of these were either unfilled or could be accounted for by annual attrition. Around 3,000 employees would actually lose their jobs, the governor said, representing nearly a third of the total number of positions lost.
Similarly, Republican House leaders say their $19.3 billion General Fund plan would likely reduce government positions by about 18,000. Accounting for positions currently unfilled and projected attrition, however, the actual number of employees laid off wouldn’t be more than about 7,000, or a little over a third of the total positions lost.
Now, to North Carolina voters this dispute may at first seem odd. If both sides grant that their plans would further damage the state’s economy, throwing thousands of additional people into the ranks of the jobless, why should either plan be adopted?
Because we haven’t factored taxes into the equation yet. Some liberals in the legislature and elsewhere assert that taxes don’t affect the private economy. They would like to go even further than Perdue did on the revenue side – by not just extending most of the sales-tax hike enacted in 2009 but also raising additional revenue through higher income taxes, a broader sales tax, or raising excise taxes on cigarettes and alcohol. They see government as magical job-creation machine, all gain and no pain.
But if you think that, you are officially not as smart as a 5th grader. As my own 5th grader, my youngest son Andrew, recently reported to me, his class has been studying natural science this year. They already understand the idea that, as the song goes, “nothing comes from nothing, nothing ever could.” Just as governments employ people when they spend money they take in taxes, households and businesses employ people when they spend the money they earn in the marketplace.
So if you want to know the net effect of a state budget on a state economy, you have to think not only about changes in spending but also changes in taxation. While both the Perdue and Republican budget plans would slash the corporate tax and allow the income tax surcharges first enacted in 2009 to expire, the Republican plan also lets the sales-tax surcharges expire. Gov. Perdue would reimpose that sales-tax hike for another two years. The GOP plan also anticipates some other income-tax relief not included in the Perdue plan.
These are consequential differences. According to a new study commissioned by the John Locke Foundation, the Republicans’ tax package would create 15,000 private-sector jobs next year, meaning that even after subtracting the 7,000 public-sector layoffs their budget plan is a net job creator. Gov. Perdue’s smaller package of tax cuts, however, would yield about 4,400 private-sector jobs, meaning that her plan would have only a small net effect on North Carolina employment.
A separate study of the economic impact of the Republican tax package, released in April by three researchers at the UNC-Chapel Hill business school, projected 16,000 new jobs in 2012 and 19,000 by 2013.
Disagree with these studies if you wish. Offer an alternative. But if your estimate of the number of jobs lost by extending the sales-tax hike is zero, then I’m afraid you are not smarter than a 5th grader.
Hood is president of the John Locke Foundation.