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You Decide: What state policies can boost economic growth?
Story Date: 1/18/2013
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Source: Dr. Mike Walden, NCSU COLLEGE OF AG & LIFE SCIENCES, 1/18/13
The North Carolina economy is growing, but slowly. Jobs are being
added and the unemployment rate is dropping, but we’re nowhere near
levels anyone would consider acceptable. So as our new governor takes
office and the General Assembly reconvenes, the priority for most of
our elected officials will be boosting the rate of economic growth in
our state so jobs can be created at a faster pace.
Unfortunately, there is no magic switch any of our state leaders can
pull to immediately create jobs. Indeed, much of the future course of
the North Carolina economy will be determined by what happens to the
national economy.
Still, there are actions North Carolina public leaders can take to
improve the long-run competitive position of the state and to gain
both jobs and income. These actions revolve around the two broad areas
that state government directly controls -- state taxes and state
spending. Here, I will look at ideas for improving the state’s
economic growth in four key categories: changing the tax system,
supporting education, funding Medicaid and building and maintaining
roads.
Updating the state tax system: Many economists say moving away from
taxing income to taxing spending is a way to encourage income and job
growth. They say taxing spending -- but exempting from taxation what
people save and invest -- would make North Carolina a magnet for
business development and expansion.
But moving from an income-based tax to a spending-based tax would be a
big change for North Carolina and, therefore, would be very
controversial. Since lower-income households spend more as a percent
of their income than higher-income households, a spending-based tax
would be regressive unless rebates, exemptions or rates adjusted with
income were introduced. Spending on many services not now taxed would
be taxed. And there would be debates about what would count as
investment spending. For example, would spending on purchasing a home
or college expenses qualify?
Supporting education: A well-educated and trained workforce is
essential to economic growth. There are many issues and challenges for
both K-12 and post-secondary education in North Carolina, but clearly
one of them is dropout and graduation rates. Although major
improvements have been made, still one out of four high school
freshmen in North Carolina won’t graduate in four years. And the
four-year graduation rate is even lower for college and university
freshmen.
Students who never graduate or who don’t graduate on time create three
costs. For themselves, their lifetime income is lower as they enter
the workforce with less preparation. For the state, a less-trained
workforce is a negative for attracting businesses. And since both K-12
and public higher education are substantially supported by state
funds, students not completing their studies in a timely manner lower
the financial return to state-spent dollars.
One idea at the high school level to motivate the interest of some
students and improve graduation rates is to increase the offerings of
vocational studies. As the baby boom generation retires, some analyses
point to an upcoming shortage of qualified workers for vocational and
technical occupations. A high school student successfully completing a
vocational or technical skill program could very well have a job
waiting for him or her upon graduation.
A proposal at the four-year university level to strengthen student
focus and efficient completion of studies is tuition costs tied to
length of time in school. That is, students completing their college
studies in four or maybe five years would pay a lower annual tuition
than students who are in their sixth or more year without a degree.
Medicaid: Medicaid is the joint federal-state funded program for
assisting lower-income households with their health care expenses. In
the last quarter-century, it has been the fastest growing part of the
state budget.
Medicaid operates as a program that reimburses approved expenditures.
Some say this encourages more spending. It also makes budgeting future
Medicaid spending very difficult.
Several states – Florida is one of these -- have received permission
from the federal government to try alternative ways of operating
Medicaid, methods that encourage cost competition and consumer
involvement. Some studies show significant savings as a result of
these innovations. North Carolina may want to study these alterative
procedures to see if they can provide needed coverage at lower costs.
Transportation: Study after study finds that well-maintained highways
are absolutely vital for economic development. But the big question
is, how do we pay for roads? Drivers are resistant to the gas tax,
especially if it rises at the same time the cost of the fuel is
jumping.
Toll roads -- where drivers of a specific stretch of highway directly
pay for that road -- are one funding alternative. Or a gas tax tied to
median household income -- and not to the cost of gas -- is another
idea. Both should be examined and evaluated.
So, taxes, education, Medicaid and roads; that’s certainly a full
agenda for thinking about ways to promote economic growth in North
Carolina. Make sure to put your “two cents” in, as my late father use
to say, as collectively we get ready to decide.
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