Rucho’s roost: Former senator explains his tax-cut strategy
Former N.C. Senator Bob Rucho has been nominated to join the UNC System Board of Governors, a move likely to strike fear in the hearts of the state’s progressives. Rucho was among the state’s most conservative and outspoken politicians during his 15 years in the General Assembly. We called the senator, who didn’t seek re-election in 2016, to ask about his views on the system for an upcoming magazine story. He deferred until the N.C. General Assembly acts on his nomination.
But Rucho was very willing to talk about tax cuts that he says enabled North Carolina to grow faster than the U.S. average from 2013-16. With state lawmakers ready to make further cuts, Rucho explained the majority party’s strategy.
A practicing dentist who lives in Matthews, an affluent Charlotte suburb, Rucho says his key motivation of cutting income taxes is to correct the state’s biggest problem: The economic chasm between rural and urban areas.
“We can’t have six urban centers that are thriving while 94 counties are poor,” he says. “Me, [Senate Pro Tem] Phil Berger and others have tried to change that because the problem has gotten worse over the years. What we had tried before failed.”
Since 2011, the state’s corporate tax rate has declined from 6.9% to 3% as of January, while individual tax rates were sliced to 5.5% from as high as 7.5%. Sales tax was cut by 1 percentage point to 4.75%. Lawmakers are mulling further cuts.
Along with the tax cuts, Republicans have succeeded in slowing spending. From 2004-09, with Democrats Mike Easley and Beverly Perdue governing, North Carolina’s budget increased at a 7.5% annual pace.
From 2012-17, the growth rate has slowed to 2.8%.
But wait, I asked, don’t most of the benefits of income tax cuts accrue to higher earners, most of whom work in the big cities, and bigger businesses? For example, a 1 percentage cut in the tax of a Charlotte bank analyst earning $90,000 a year is $900, while someone making $30,000 at a Forest City pallet maker gets $300.
Rucho responds that costs of living are much higher in Charlotte than Rutherford County and that a $10 an hour job may be very valuable in rural areas that provide few other options. It takes years for tax cuts to have maximum impact, he adds.
The key is to create more jobs that help people stay off government support programs, he says. “And creating jobs is what we did. I know it’s blasphemy for my Democratic colleagues, but by cutting taxes we increased revenues.”
Rucho also favors shifting sales-tax revenue from wealthy counties to poorer ones. He’s disappointed that lawmakers blocked much of that plan, mostly under pressure from wealthier, bigger counties. A $1 million grant for a new sewer system in a rural county, provided through a transfer program, could have a dramatic effect, whereas a $1 million project in Wake or Mecklenburg might be much less impactful.
The media, he says, hasn’t given Republican leaders enough credit for eliminating corporate tax breaks that total more than $1 billion and had mostly been directed at large companies. While reducing the $80 million annual outlay for film incentives received the most publicity, North Carolina also eliminated various deductions and tax credits that favored some companies over others. “Rather than picking winners and losers in economic development, we’ve been creating a level playing field.”
But with the all growth, what about stagnant wages? “It’s true that wages haven’t improved, but they are starting to move now,” Rucho says. North Carolina remains a magnet for new residents, which depresses wages, he says.
As for UNC, Rucho says don’t worry about his agenda. “I want to make sure the university remains one of our economic crown jewels.”