July 20, 2005

Facts? Why Bother?

In today's News & Observer of Raleigh, NC former Wachovia Bank Corp. Chairman, major Republican Party Donor, and Federalist Society Member, John G. Medlin Jr. has a hilarious Op-Ed column about why North Carolina absolutely needs to follow his advice and cut the income tax rate for people in the highest bracket. Of course, Medlin isn't trying to write comedy, but if he needs a little extra cash to make it through retirement, let me suggest that he may have found his vocation.

First, he claims that NC is losing people to the surrounding states that have lower income taxes. Does he offer proof? Nope. He does, however, inform us that "It is interesting that the fastest-growing city in the Charlotte metro area is Rock Hill, S.C., whose population jumped 16.2 percent between 2000 and 2004 compared with 6.5 percent for Charlotte and only .9 percent for Gastonia." If I remember my scientific method from middle school correctly, that wouldn't qualify as a controlled experiment. One town grew faster than the others. One North Carolina town grew dramatically faster than the other North Carolina town. Presumably, both of these towns, being in North Carolina, and all, are each paying North Carolina's statewide income tax. Seems like something else might be playing a factor in determining population growth.

For what it's worth, North Carolina has experienced population growth for every year dating back to at least 1976. Medlin must have forgotten about that, surely he didn't write his column in bad faith in an effort to scare up some popular support for reducing his personal tax bill.

Here is where he really gets into trouble:

What are the numbers, income and taxes of individuals vulnerable to loss? It is estimated that in 2004 about 70,000 tax returns, or about 2.5 percent of the state's total, were in the 8.25 percent bracket and accounted for about 30 percent of state personal income taxes. Their taxable income averaged around $500,000 and they paid an average of about $39,000 in state income taxes and an estimated $9,000 in state sales taxes. Higher-income people expect to and should pay a higher proportion of taxes, but there are limits to what they will accept when there are less punitive alternatives.

No one knows for certain how many higher-income taxpayers leave or do not come due to our state's higher income tax rates, but a conservative estimate is at least 750 per year on average. Based on the above figures, that would result in a permanent loss from our income and sales tax revenue base, which has grown for other reasons, of about $36 million per year on average, or a total of $144 million for the last four years.

Two more years at this rate would raise the estimated cumulative permanent loss from the tax base to around $216 million, which is more than the estimated revenue gain per year from the extra one-half percent "temporary" income tax increase. These estimates do not include lost city and county sales and property taxes or jobs and tax revenues lost due to economic development prospects being scared away by our higher taxes. [emphasis mine]

Nobody knows how many, or if any high income people are moving away, but Medlin decides he can guess, and don't worry, he's making a "conservative estimate" (I'll say). And now that he's made a wild guess on hypothetical population loss, he'll note that over the past few years, that sales tax collection in the state has increased. So, a made up number of people leaving the state, when alongside the fact that revenue has been increasing, leads Medlin to believe that "at this rate" the state will lose money over the next two years. And not just a little either, where talking "$216 million."

Medlin threatens population loss. The population is actually growing. Medlin warns of declining revenue. Recent trends, however, indicate growth.


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