• Budget a Boon • Linking America for State’s Schools? C A R O L I N A to Nazis at UNC Forum GTP: Name’s Not Same Deaver Does Reagan Right Volume 10, Number 11 A Monthly Journal of News, October 2001 Analysis, and Opinion from JOURNAL the John Locke Foundation www.CarolinaJournal.com www.JohnLocke.org Terrorism and Taxes: Dark Days for N.C. Economy Severity and Depth Easley Touts Budget of Recession Unknown, Despite Weak Economy, Economists Report Split in House, Senate By RICHARD WAGNER By PAUL CHESSER Editor Associate Editor RALEIGH RALEIGH $685 million tax increase voted by xtended two and a half months be the General Assembly and signed yond the start of the new fiscal year A Sept. 26 by Gov. Mike Easley will E and almost eight months to the day serve only to exacerbate and prolong a re- since convening, the General Assembly cession in North Carolina, economists say. adopted a state budget Sept. 21, which Gov. “Going into a recession we’ve already Mike Easley signed the following week. had high taxes. Now we’ve just instituted The plan elevates state spending by 5.2 this massive tax increase, which is going to percent for fiscal 2001-02 — more than $700 make it worse,” said Dr. Roy Cordato, an million. Tax increases will raise revenue by economist with the John Locke Foundation. $435 million in 2001-2002 and $620 million Although the nation’s economy has not the following year. Combined with tax in- yet “officially” entered a recession, North creases passed earlier in the legislative ses- Carolina’s economy is “certainly” in one, sion, lawmakers heaped $1billion on tax- Cordato said. “We’ve had a huge increase payers. in unemployment in this state. We went “North Carolina is moving forward,” from a little over three percent a year ago to Enforcing a crackdown, Raleigh-Durham Airport security workers examine passengers’ luggage. Easley said in a statement. “We will not sit well over five percent now.” idle waiting for better economic days. Our “We have the highest unemployment rected state agencies to cut spending across Dr. Stephen E. Margolis, head of the state has come together like never before to rate in the Southeast,” Cordato said. “And the board by 4 percent. Department of Economics at N.C. State Uni- ensure that our children get the education we’ve had the biggest jump in unemploy- Many analysts of the Blue Chip Eco- versity, said tax increases, in general, put a they deserve and our most vulnerable citi- ment in the Southeast in the last year.” nomic Indicators expect the nation’s Gross damper on spending. Taxes tend to cause zens get the care they need.” Dr. Michael L. Walden, an economics Domestic Product to shrink by 0.5 percent decreased output and lower business and While the governor may believe the professor at North Carolina State Univer- in the July-September quarter and decline consumer spending, he said. state came together, the legislature was sity, confirmed that North Carolina has by 0.7 percent in the final three months of clearly divided over the tax and budget been in a recession and that the terrorist the year. A recession is commonly defined A High-Tax State plan. Both the House and Senate voted along strikes of Sept. 11 and the state’s tax increase as two consecutive quarters of declining party lines, with Democrats in favor and will make North Carolina’s recession GDP. North Carolina already had compara- Republicans against, except for Rep. Mon- “deeper and longer.” While administrative and legislative tively high income taxes on upper-income roe Buchanan, R-Mitchell, who voted for leaders in Washington are fashioning a bi- earners before the recent tax increase. the package. “Stupid” in North Carolina partisan approach—looking for various “We are now eligible to be regarded as The state’s, and the nation’s, economic ways to cut taxes—to stimulate the a high-tax state for the highest-income earn- downturn was the primary reason Republi- “The direct effect of tax increases will economy, North Carolina officials took the ers. That is not desirable,” Margolis said. cans gave for opposing the budget. They be negative,” Walden said. “That is, eco- opposite approach by raising taxes. Low-income earners especially will be hard- claimed raising income taxes on individu- nomic growth in the state will be slower James Smith, business professor and hit by the half-cent increase in the state sales als earning more than $200,000 annually, in with the tax hikes than without them.” economic guru at UNC-Chapel Hill, said in tax, he said. addition to a half-percent sales tax increase A report issued Oct. 8 by the governor’s a News & Observer of Raleigh news story People will be more cautious, both in and various additional taxes on goods and office showed that revenue in the first quar- that “It’s one of the all-time stupidest things terms of their personal safety and their services, would place a further drag on the ter of the current fiscal year fell 3 percent done by a legislature anywhere. It’s a ri- spending, after the attacks, Margolis said. economy in a time of crisis. compared with the same period last year diculous budget … You don’t raise taxes in Widespread uncertainty about the war on “This is absolutely the worst time you and was $700 million less than expected. a recession, or even in a dismal economic terrorism and the nation’s economy will can take to raise taxes on the people of The state’s budget, approved by the environment.” inhibit consumer spending and business North Carolina,” said House Minority legislature only a few weeks ago, was based Cordato agreed. “I think it’s interest- investments. leader Leo Daughtry, R-Johnston. An ac- upon an anticipated growth rate of 4 per- ing to note right now the big talk in Wash- North Carolina’s economy was anemic companying elimination of the marriage cent for the entire year. Economists had ington is opposite from the talk in North for several months before Sept. 11, and the tax penalty and increase of the child tax predicted 2 percent growth in the first quar- Carolina,” he said. Thinking in the nation’s attacks that day will exaggerate the state’s credit failed to mute Republican outcries ter and 6 percent in the fourth quarter for an capital now is, “Gosh, the economy is going economic downturn, Margolis said. against the plan. average of 4 percent. in the tank, we need more tax cuts,” such as Because of the downturn, Easley di- a capital-gains tax cut. Continued as “Terrorism and Taxes,” Page 3 Continued as “Now is Right Time,” Page 3 Which Kind of Tax Do You Dislike Most? The John Locke Foundation NONPROFIT ORG. Contents 200 W. Morgan St., # 200 U.S. POSTAGE Income 38.3% Raleigh, NC 27601 PAID Sales 18.1% RALEIGH NC Property 29.8% Calendar 2 PERMIT NO. 1766 All Equally 13.8% State Government 3 Education 6 Higher Education 10 Local Government 14 Books & the Arts 18 Opinion 20 % of N.C. Respondents in Sept. 1998 JLF Poll Parting Shot 24 C A R O L I N A Contents ON THE COVER Morganton can truly claim it has closed the • Samuel Walker says the solution to ur- JOURNAL achievement gap. Page 9 ban sprawl lies in fixing the problems that • The North Carolina legislature added in- cause people to leave cities in the first place. sult to injury when it raised taxes on con- HIGHER EDUCATION Page 15 stituents at the end of September. The state Richard Wagner is already suffering from a recession and the • The ‘Progressive Faculty Network’ at • An interview with Gaston County Com- Editor terrorist attacks of Sept. 11 only made things UNC-Chapel Hill blames the U.S. for the missioner Pearl Burris-Floyd. Page 16 worse, economists say. Page 1 Sept. 11 terrorist attacks in a series of ‘teach- ins.’ Page 10 •An inflatable gorilla haunts Hickory offi- Thomas Paul De Witt NORTH CAROLINA cials; Wilmington annexes and retroactively Opinion Editor • UNC Chancellor James Moeser goes a- taxes; and other local news. Page 17 •New and improved? The former Global begging in his first “state of the university” Paul Chesser Transpark Development Zone is now being speech. Page 11 THE LEARNING CURVE Associate Editor marketed as North Carolina’s Eastern Region. Page 4 •Arch T. Allen is troubled by Moeser’s “po- • Reviews of A University for the 21st Cen- litically correct platitudes.” Page 11 tury by James J. Duderstadt and Lady of Ar- Sherri Joyner, Erik Root, Jon Sanders • Would North Carolina’s proposed ‘Clean lington by John Perry. Page 18 Assistant Editors Smokestacks’ legislation actually increase • UNC-Chapel Hill offers this month’s pollution in the state? Page 5 choice for a sex-obsessed class. Page 12 • Reviews of A Different Drummer: My Roy Cordato, Charles Davenport, Thirty Years with Ronald Reagan by Michael Ian Drake, Tom Fetzer, • Rep. J.C. Watts, Jr. captivated a John Locke • A prank in the Daily Tar Heel leads to calls Deaver and The Satanic Gases by Patrick J. Nat Fullwood, David Hartgen, Foundation luncheon audience Sept. 27, fo- for a homosexual student center. Page 12 Michaels and Robert C. Balling. Page 19 Paige Holland, George Leef, cusing on taxes and terrorists. Page 5 Michael Lowrey, Kathryn Parker, • U.S. News & World Report’s annual col- OPINION Marc Rotterman, Jack Sommer, EDUCATION lege rankings gain a lot of attention, but George Stephens, John Staddon, many grumble about their methodology.