South By North Strategies, Ltd.

Tax Reform Doesn’t Eqqual Economic Growth

Writing for Reuters, David Callahan explains why “tax reform does not guarantee growth.”

Yet exactly how and why tax reform would spur growth is far from clear. Many proponents of reform, including Romney, want to lower tax rates while retaining the same level of revenue. But doing that means reducing major individual tax breaks that subsidize key sectors of the economy – including housing and healthcare. Long term, there are good arguments for whacking such subsidies, which tilt heavily in favor of affluent households and distort our economy. But curbing these freebies doesn’t offer a short-term economic fix and, in fact, could hurt growth.
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Let’s start with the best-known big tax break – the mortgage interest deduction, which will cost the U.S. Treasury about $100 billion next year, according to the Congressional Research Service. Shrinking this loophole is a good idea in principle, since it primarily benefits more affluent households who have big mortgages and itemize their taxes, but it would be a blow to a housing sector that is still struggling. Smaller subsidies for home buyers would mean weaker sales and less new construction and would keep home values depressed – not an outcome that anyone wants to see right now. Among other things, such reform could be another severe blow to construction workers, who now have the highest unemployment rate of any group.

Two Standards Of “Dependency”

James Surowiecki of The New Yorker points out the double standard when it comes to tax subsidies and government spending for working individuals and corporations.

Corporate welfare isn’t necessarily a bad thing. Some of these giveaways arguably do a lot of good. But companies that benefit from these policies are just as dependent on the government as the guy who gets the earned-income tax credit. And, when [Gov. Mitt] Romney concentrates his fire on the latter rather than on the former, it makes you wonder if his problem isn’t with government assistance per se, but only with government assistance to poor and working people. Romney may say that he wants small government, but what he’s pushing for is a government that’s small when it comes to helping people and big when it comes to helping business.

Around The Dial – October 1, 2012

Economic policy reports, blog postings, and media stories of interest:

• Paul Krugman proposes “the real referendum.”
• The New York Times reports on the possible end of the payroll tax cut.
• Working Economics notes the decline in stock ownership by households.
• Off the Charts reminds readers not to “forget state taxes.”
• Rortybomb asks if “taxing capital income” is fair.

Still Falling

Rortybomb tracks the continuing decline in state and local education funding.

Local Unemployment Rates Dropped In August

CHAPEL HILL (September 28, 2012) – Between August 2011 and August 2012, unemployment rates fell in 92 of North Carolina’s 100 counties and in 13 of the state’s 14 metropolitan areas. Over that same period, labor force sizes contracted or held steady in 70 counties and in five metro areas. These findings come from new estimates prepared by the Labor and Economic Analysis Division of the North Carolina Department of Commerce.

“Local unemployment rates dropped across most of North Carolina over the year,” said John Quinterno, a principal with South by North Strategies, Ltd., a research firm specializing in economic and social policy. “Local labor market conditions nevertheless remained distressed in August, with 57 counties and five metros recording unemployment rates at or above 10 percent.”

Compared to December 2007, which is when the economy fell into recession, North Carolina has 5.4 percent fewer jobs (-223,300) and has seen its unadjusted unemployment rate climb from 4.7 percent to 9.7 percent. In August, the state gained 1,100 more payroll jobs than it lost (+/- 0.0 percent). Since bottoming out in February 2010, the state’s labor market has netted an average of 3,433 jobs per month, resulting in a cumulative gain of 103,000 positions (+2.7 percent).

Between July 2012 and August 2012, unemployment rates fell in 72 counties, rose in 18 counties, and were unchanged in 10 counties. Individual county rates ranged from 4.7 percent in Currituck County to 17.2 percent in Scotland County. Overall, 57 counties posted unemployment rates greater than or equal to 10 percent, and 42 counties posted rates between 5 and 10 percent.

“Non-metropolitan labor markets continue to struggle relative to metropolitan ones,” noted Quinterno. “In August, 10.8 percent of the non-metro labor force was unemployed, compared to 9.2 percent of the metro labor force. Compared to December 2007, the non-metro labor force is now 1.6 percent smaller in size, and seven percent fewer persons are employed. Meanwhile, the number of unemployed rural persons has grown by 91.5 percent and totals 142,238. Over the year, the non-metro labor force contracted by 23,595 persons, or 1.8 percent.”

Over the month, unemployment rates fell in 13 metro areas and rose in one metro. Rocky Mount had the highest unemployment rate (12.9 percent), followed by Fayetteville (11.2 percent). Durham-Chapel Hill had the lowest unemployment rate (7.6 percent), followed by Asheville (7.7 percent) and Raleigh-Cary (7.8 percent).

Compared to August 2011, unemployment rates are lower in 92 counties and in 13 metros. Over the year, labor force sizes contracted or held steady in 70 counties and in five metros. Among metros, Wilmington’s labor force contracted at the fastest rate (-2.3 percent), followed by Winston-Salem (-1.2 percent), Jacksonville (-0.3 percent), and Hickory-Morganton-Lenoir (-0.1 percent). With those changes, metro areas now are home to 71.7 percent of the state’s labor force, with 50.3 percent of the labor force residing in the Triangle, Triad, and Charlotte metros.

In the long term, any meaningful recovery will hinge on economic and employment growth in the Charlotte, Research Triangle, and Piedmont Triad regions. Yet their growth remains weak. Collectively, employment in these three metro regions has risen by 1.1 percent since December 2007, and the combined August unemployment rate in the three regions equaled 8.9, down from the 10.4 percent rate recorded one year ago. Of the three broad regions, the Research Triangle had the lowest unemployment rate (7.9 percent), followed by the Piedmont Triad (9.8 percent), and Charlotte (9.9 percent).

“Local unemployment rates fell across much of North Carolina over the past year, but conditions remain far from normal,” said Quinterno. “Unemployment rates remain elevated across the state, and some 450,000 North Carolinians are jobless and seeking work, even though the odds of finding a job remain stacked against them.”