PATRICK GLEASON: The Buckeye and Tarheel states have much to learn from one another on tax, energy policy

Patrick Gleason

Patrick Gleason

Residents of Ohio and North Carolina like to bicker over which state has claim to the Wright Brothers. North Carolina’s license plate is adorned with the slogan “First in Flight,” while Ohio plates market the state as the “Birthplace of Aviation.” That dispute will never be resolved, but lawmakers from these two politically and economically important states have a great deal to learn from one another when it comes to tax and energy policy.

The Internal Revenue Service (IRS) recently released migration data showing where Americans moved to and from during the 2013 tax year, the most recent year for which data is available, as well as how much income moved across state lines. The IRS migration report found Ohio to be a loser state, whereas North Carolina was one of the nation’s biggest winners.

North Carolina attracted more new residents than all but three other states. From 2012-2013, North Carolina saw a net increase of over 25,000 residents, who brought more than $1.5 billion in income with them from other states. During that same year, Ohio saw a net reduction of more than 20,000 residents, who took $1.18 billion with them to greener pastures. The top recipients of Ohio tax refugees were Florida, South Carolina, and North Carolina. Between 2012 and 2013, Ohio lost on net more than 83,000 residents to North Carolina, who brought over $83 million in income with them.

While it’s not the only thing determining where Americans live and work, tax policy is certainly a significant factor. Sure, North Carolina has nice beaches and better weather than Ohio, but what really gives the former an advantage over the latter in attracting residents and jobs is its superior tax climate (being a Right to Work state also gives North Carolina a tremendous leg up).

Shape 3d of North Carolina map with flag isolated on white background.

One way Ohio lawmakers could make their state more competitive and stop the flight of residents and income to other states is to do what North Carolina did and improve its business tax climate through tax reform. According to the non-partisan Tax Foundation, Ohio has one of the least hospitable business tax climates in the nation, with only six other states having a worse tax climate for employers. Meanwhile, North Carolina has the 16th best tax climate.

However, this wasn’t always the case. In fact, North Carolina should offer hope to Ohio, as what has happened in North Carolina is a case study in how tremendous progress can be made in fairly short order, if the political will is there. As recently as three years ago, it was North Carolina that had the 44th ranked business tax climate in the nation, meaning that, like Ohio today, only six other states had a worse tax climate.

The enactment of historic tax reform in 2013 reduced and flattened North Carolina’s state income tax, previously the highest in the southeast, while beginning a multi-year draw down of the state corporate tax from 6.9 percent to 3.0 percent. As a result, North Carolina’s business tax climate ranking has since leapfrogged most states. Rate-lowering tax reform is paying dividends for the state economy. In the most recent 12 month period, North Carolina was the only state in the South to make national top 10 lists for both per capita income growth and job creation.

 

While Ohio can learn a lot from North Carolina when it comes to improving the tax code, North Carolina legislators can learn a great deal about smart energy policy reform from their counterparts in Ohio.

Both North Carolina and Ohio are among the 25 states with a renewable energy mandate, also referred to as a renewable portfolio standard (RPS). Renewable energy mandates, most of which were enacted during the previous decade, require utility companies to generate a certain percentage of electricity from renewable sources. The problem with these mandates is they drive up the cost of electricity by design and, like tax hikes, leaves individuals and families with less income for basic necessities and other priorities. Meanwhile, RPS laws leave employers with diminished job-creating capacity.

Energy Information Administration data show that in states where RPS mandates are in effect, electricity is 22.9 – 24.2 percent more costly for residential customers and 21.4 percent more expensive for industrial rate payers. Smartly, Ohio legislators have taken corrective action to mitigate the harm this misguided mandate does to their constituents and the state economy.

Image credit: USGS

Image credit: USGS

 

In 2014, Ohio legislators passed a bill that froze the state RPS at 2.0 percent for two years and pushed back the final target of 12.5 percent to 2026. In doing, Ohio lawmakers have provided a respite to their constituents that will allow them to keep hard-earned income that would’ve otherwise gone to artificially inflated utility bills. Last month a legislative study committee issued a report recommending that Ohio lawmakers make the mandate freeze permanent.

“The study committee believes that continuation of the mandates will be too costly for Ohioans, and that the penalties for not attaining the mandates are overly punitive,” the report concluded.

North Carolina, the only state in the South with a renewable energy mandate on the books, would be wise to follows Ohio’s lead and at least freeze the state’s RPS.

study commissioned by the Raleigh-based John Locke Foundation found that by 2021, the year North Carolina’s renewable energy mandate is to be fully phased in, the mandate will increase North Carolinians’ energy costs by $1.8 billion, result in the loss of more than 3,500 jobs, reduce North Carolinians disposable income by $56.9 million, and cut in-state investment by $43 million. Jon Sanders, director of regulatory studies at the John Locke Foundation, points out that electricity rates in North Carolina have increased over 2.5 times the national average increase since 2008, and that this increase has occurred during a time when the state’s mandate was at its lowest level. Things are only going to get worse for ratepayers unless legislators take action.

Legislation to freeze North Carolina’s renewable energy mandate was approved by the North Carolina House during this year’s legislative session, but failed to pass the state Senate. North Carolina lawmakers would do well to make passing that legislation a top priority in 2016.

Ohio wasn’t the only state to recently scale back their renewable energy mandate. Kansas effectively killed their mandate earlier this year and West Virginia repealed their mandate. Legislators in North Carolina and any other state with an RPS would do their constituents a service in 2016 by following the lead of Ohio and halting their expensive energy mandate.

Freezing and ideally repealing mandates that drives up utility bills isn’t just good policy, it’s strong election year politics.

 

Patrick Gleason, originally from North Carolina and an alumnus of N.C. State University, is director of state affairs at Americans for Tax Reform and a senior fellow at the Beacon Center, a free-market think tank based in Nashville, Tenn. Follow Patrick on Twitter @PatrickMGleason. This article originally was published Oct. 20 at Forbes.com.