- Details
-
Tuesday, 25 August 2026
-
Written by John Hood
Earlier this month, the voters of Missouri decisively defeated a constitutional amendment authorizing an end to the state’s income tax. It was an overwhelming defeat — 17% for, 83% against — for a ballot measure that failed in urban, suburban, and rural counties alike.
Did this event just set off a progressive counteroffensive against 15 years of state-level tax reform across the country? That’s no academic question in North Carolina, a leader in the tax-reform movement. Through legislation, not referendum, the General Assembly has slashed tax rates on personal and corporate income while broadening the tax base, broadening and reducing the sales tax, and reforming other taxes. Our use of revenue triggers to phase in tax changes has become a national model. And lawmakers have placed a constitutional amendment on the North Carolina ballot that will have the effect of limiting future property-tax increases.
Does the vote in the Show Me State portend a similar result in the Tar Heel State? Nah. I expect the property-tax amendment to pass, albeit not by a comparably overwhelming margin.
Missouri voters don’t love taxes generally or the income tax specifically. But on fiscal matters, they are conservative with a small “c,” as are our own voters. Capping future increases in property tax is a very different ask than abolishing an entire form of taxation, especially when voters are being asked to do so without a clearly laid out plan to fund core public services some other way.
There was a plan, to be sure, and in broad outlines it conformed with prudent reform principles. The purpose of taxation is to finance public services, not to engineer economic or social outcomes. It is best accomplished by applying a single marginal rate to a properly defined tax base. To do otherwise is to create disincentives to work, save, and invest, and to violate the principle of proportionality; if you are, say, three times better off than I, you ought to pay three times as much tax.
Although total income might seem like the proper tax base, it is not. If you tax the principal of an investment, the money used to buy equities or build factories, then you have already reduced the future stream of income by that percentage. To tax the resulting dividends or capital gains is artificially to make consumption more attractive than investment.
In Missouri, the plan was to phase out the income tax in favor of a sales tax more broadly applied to all goods and services sold at retail. Okay, but to accomplish that would require taxing medical care, legal representation, banking, and other services sold by powerful interest groups that will fight tooth-and-nail against it. That’s why broad-based sales taxes are extremely rare. When Missourians were told that, in practice, their sales tax might shoot up north of 10%, they got antsy. What if some future governor and legislature reintroduced an income tax on top of a skewed and costly sales tax? Or a failed sales-tax reform led to budget deficits and fiscal chaos?
In other words, “grand bargain” strategies for tax reform are risky. They contain lots of moving parts, some easier than others to sell or maintain. They change established systems and practices that may not comport with abstract principle but around which households and businesses have long structured their daily operations. Ideological opponents can readily identify these risks, exaggerate them into guaranteed calamities, and then partner with spending lobbies and special-interest groups to destroy the grand bargain, as just happened in Missouri.
There are alternatives. Regarding North Carolina’s tax code, my John Locke Foundation colleagues recommend that the General Assembly index the standard deduction to inflation, remove long-term capital gains from the tax base, and attempt to expand the sales tax to other retail services only after fully exempting business-to-business transactions (which are not, of course, retail sales).
Tax reform succeeds to the extent it is sustainable and retains public confidence. North Carolina has the right approach.
Editor’s Note: John Hood is a John Locke Foundation board member. His books Mountain Folk, Forest Folk, and Water Folk combine epic fantasy with American history (FolkloreCycle.com).
- Details
-
Tuesday, 18 August 2026
-
Written by John Hood
As a Freedom Conservative, I recognize that some policies I favor are broadly popular, others draw mixed reviews, and a few are broadly unpopular. I also recognize that, as a commentator rather than candidate for office, I enjoy a greater latitude to advocate policies I think are wise even though most of my fellow North Carolinians do not (yet) agree with them.
One example is a minimum wage set by government diktat. The United States specifies a national minimum wage of $7.25 an hour for most jobs. Most industrialized countries set wage floors, often higher ones in real terms than America’s. Furthermore, most states set minimum wages within their jurisdictions that are higher than the federal floor, including Florida at $14 an hour, California at $16.90, New York at $17, and the District of Columbia at $18.40.
North Carolina is one of the states that hasn’t raised the legally required minimum. That is one reason the Tar Heel State fares well in national comparisons of state regulatory burdens. For example, in the Fraser Institute’s most recent Economic Freedom of North America Index, North Carolina ranks 7th. Among our neighbors, only Tennessee (2nd) is rated higher in economic freedom.
I think employers and employees should be free to strike their own bargains. If I offer you $5 an hour, you won’t work for anything less than $10, and I deem that too high a price to pay for your labor, then we make no deal. Or we might meet in the middle, at $7.50, and become colleagues.
That doesn’t mean I see no role for government. Recourse to the courts to resolve contract disputes is essential. Certain forms of regulation may also be necessary to deter fraud and other forms of abuse — to ensure that the explicit or implicit bargain struck represents a true meeting of the minds. But I don’t think that, in a free society, regulators or politicians possess either the requisite knowledge or the moral authority to determine what a “fair” rate of compensation is for any or all jobs.
Still, I freely admit that most North Carolinians, and very possibly most of my readers, do not agree with this view. They believe it is possible and prudent to set wage floors.
Over the decades, I have argued that even when judged on its own terms — making poor people better off — the minimum wage is ineffective. Many workers gain higher incomes, of course. But many of these beneficiaries of the policy are not poor. Among the ranks of minimum-wage workers are millions of teenagers, young adults, or retirees whose household incomes far exceed the poverty level. At the same time, a minimum wage clearly makes some workers worse off. Often young and inexperienced, they do not yet possess the skills required to produce enough output per hour to make it worthwhile to hire them at the minimum. In response, employers redistribute the workload among fewer, higher-paid employees or automate tasks such as greeting customers, taking orders, accepting payment, and delivering goods or services. The result is that folks who are, indeed, disproportionately poor fail to gain employment at all.
Whether minimum wages produce joblessness is a question scholars have explored for many decades. Until the 1980s, the vast majority of studies showed a negative relationship between minimum-wage hikes and job creation or employment rates. Over the ensuing couple of decades, some scholars employing new models and empirical techniques challenged the traditional view with papers that showed scant effects on or even increases in employment.
I still think the traditional view is correct. In a comprehensive survey published in the journal Industrial Relations in 2022, University of California-Irvine scholar David Neumark and economist Peter Shirley concluded that there was “a clear preponderance of negative estimates” in the scholarly literature, especially “for teens and young adults and the less educated.”
I also think citing such findings is unlikely to change many minds. That won’t stop me from trying.
Editor’s Note: John Hood is a John Locke Foundation board member. His books Mountain Folk, Forest Folk, and Water Folk combine epic fantasy with American history (FolkloreCycle.com).
How to resolve AdBlock issue? 
