Why April’s unemployment report is worse than it looks

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May 18, 2013 at 9:00 amCategory:NC Budget and Tax Center

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Yesterday’s announcement that North Carolina’s unemployment rate had dropped to 8.9 percent last month was met with considerable acclamation in a number of media reports today. Unfortunately, much of this positive commentary was misplaced—despite demonstrating some superficial improvement, the new jobs report is far worse than it first looks.

In fact, the dip in the state’s unemployment rate is due almost entirely to a contracting workforce, rather than genuine new job creation. Specifically, almost 20,000 workers dropped out of the labor force the pool of prime age workers who either have a job or want one—last month, including 15,000 jobless workers who were unable to find employment and gave up searching.

Given that the labor force contracted by 20,000 and the total number of employed workers also dropped by 4,000 at the same time, it appears that the 14,000 drop in the number of unemployed workers is largely the result of jobless workers becoming discouraged—giving up on looking for work and dropping out of the labor force altogether.

As a result of these changes, the labor force—is now at the lowest level since July 2012, erasing almost 9 months worth of gains. Even more troubling, the total number of employed people in North Carolina also dropped to the lowest levels since October 2012, suggesting that North Carolina’s economy is continuing to struggle in generating long-term sustainable job creation.

In other words, unemployed workers moved out of the labor force altogether, rather than moving into new jobs.

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Preliminary Analysis of House Tax Plan

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May 17, 2013 at 4:08 pmCategory:NC Budget and Tax Center

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In response to yesterday’s release by the House of their plan to cut taxes, we noted that the plan represented a cut for the richest taxpayers and that the shift to an expanded sales tax on goods and services would hit middle and low income families hardest.

With more details on the plan available, we are able to provide a clearer estimate of the impact of the House tax shift plan on taxpayers.  The results show that the combined effect of increasing reliance on the sales tax while cutting income taxes will mean 80 percent of the taxpayers will carry an increased tax load compared to the state’s current system.  Moreover, 35 percent of the income tax cuts go to taxpayers earning on average $940,000.

It is clear that the richest taxpayers benefit under this plan while the low- and middle-income taxpayers will experience a greater tax load.   In particular, older North Carolinians with income below  $19,500 or those with medical expenses, middle class households with dependents older than 16, and heads of households with no children will be among the hardest hit.

The House tax plan is a tax shift not tax reform.

McCrory announces process for reforming Medicaid

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May 17, 2013 at 12:43 pmCategory:Uncategorized

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Legislative leaders and Gov. Pat McCrory gave a general outline Friday of how they plan on changing the state’s $13 billion Medicaid program, a program that affects 1.5 million North Carolinians and accounts for one of the state’s biggest expenditures.

House Speaker Thom Tillis, Senate leader Phil Berger and McCrory issued a joint press release Friday morning that says the Republican leaders will use the Senate budget plan to have the N.C. Department of Health and Human Services draw up a waiver proposal to ask the federal government for the Medicaid changes.

The Medicaid program uses a combination of federal and state funds to provide required health care for more than 1.5 million low-income of North Carolina’s disabled citizens, elderly residents and children.

The announcement of how the reform effort will progress came a month and a half after McCrory and his Department of Health and Human Services Secretary Aldona Wos announced they wanted to open North Carolina’s Medicaid program up to potential privatization.

Today’s announcement is the first time the McCrory administration has outlined how the path to reform will take place.

Though still light on details, it says that the Senate budget plan (which will be released to the public Sunday night) will include a provision calling on DHHS officials to draw up a waiver that will then be submitted to the federal Medicaid program for approval. The Senate budget is also expected to include a controversial tax reform proposal that will cut income and business taxes, and create a need for $1 billion in cuts over the next three years.

The Medicaid waiver will be subject to legislative approval as well, before being sent off to the federal government.

“The federal government must allow North Carolina to come up with its own solution,” McCrory said in a written statement. “We have a unique opportunity in North Carolina to ensure patients and taxpayers achieve the common goal of provide the best possible patient care in a system that is financially sustainable.”

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McCrory, Tillis, Berger: Privatizing Medicaid is unpopular, but we need money to fund our tax cuts for rich people

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May 17, 2013 at 11:29 amCategory:Uncategorized

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McCrory11092012Given the extraordinarily negative public reception to Governor Pat McCrory’s idea to privatize the NC Medicaid program and the way it fell flat in its first presentation at the NC General Assembly, you might be forgiven in thinking that this particular Medicaid “reform” was dead in the water in NC.  Unfortunately you would be wrong.

Today Governor McCrory issued a press release saying he would be coordinating with the Senate and House to require the Governor’s Department of Health and Human Services to request a Medicaid waiver from the federal government.  This federal waiver would allow NC to make unspecified changes to Medicaid and “create a predictable and sustainable Medicaid program for taxpayers.”

Let me translate this for you.  The only reason for NC to get a “federal waiver” to change its Medicaid program in this way would be to give NC the option to sell parts of the Medicaid program off to private companies – which has been the plan here all along.  Why?  Because if you sell off part of our Medicaid program to a private health insurer like Amerigroup at a price lower than we pay now for delivering the same Medicaid services, then the General Assembly frees up some money in its budget.  And how does a private out of state insurance company deliver the same health services for a lower price to moms and kids on Medicaid?  They make it harder to get health services and they lower significantly the rates they pay to doctors and hospitals for delivering care.  [My collegue Adam Linker explains how this shell game works - and how it has failed miserably in other states.]

So, what’s the big ticket item that the NC Senate and House would like to have more money for?  Their tax plans, of course.  The House and Senate tax plans would each cost NC over $1 billion and both the House and Senate plans would shift the tax burden onto low and middle income taxpayers, requiring a majority of taxpayers to pay more while the wealthiest people pay less.  Both plans leave the state with less revenue and NC has to balance its budget, hence the rush to privatize Medicaid and free up a few dollars for those big tax cuts for the wealthy.

 

The trial balloon that would not float

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May 17, 2013 at 9:30 amCategory:NC Budget and Tax Center

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The stories we have featured this week from states across the country that have experimented with tax cut proposals hold a common  lesson for North Carolina: Tax cut proposals are unpopular when it comes to the details and mathematically difficult to make work.  Since most states must balance their budgets, cuts to income taxes require either higher sales taxes, which hit middle- and low-income families hardest, or cuts to public services that people rely on, including education, health care and transportation. In state after state, tax cut trial balloons have been floated and sooner or later deflated. And where tax cuts have been enacted, they have failed to deliver the promised economic boom.

You can read each of the stories here from Georgia, Kansas, Louisiana and Nebraska.

These lessons from other states should be heeded by North Carolina policymakers as they pursue similar flawed tax policies. Their counterparts have paid high political costs for failure, while the public has been reminded of the value that taxes bring in the form of good schools, safe roads and healthy, secure communities.

North Carolina has never been a follower. By pursuing tax cuts, our lawmakers are adopting the worst ideas from other states and making many of the same mistakes. Among them:

  • North Carolina’s tax cut proposals shift the tax load to middle- and low-income taxpayers.  This is the same course tried, and abandoned, in Louisiana, Kansas and Nebraska, where tax cut proposals would have boosted taxes for the majority of taxpayers, primarily middle- and low-income households, while wealthy households would have gotten a tax cut.
  •  A tax cut proposal by North Carolina’s Senate leadership would reduce dollars available for schools, health care and other investments.  In Georgia, the goal of keeping tax cuts from reducing total revenue quickly eroded as special interests sought to maintain their tax breaks.   Kansas had a similar experience, and that state is now struggling to overcome huge revenue losses, rather than getting the economic “shot of adrenaline” the governor promised. In Louisiana, lawmakers found it impossible to boost sales and cigarette taxes enough to make up the money that would have been lost from income tax cuts. Though North Carolina Senate leaders say their plan would make up for lost revenue by extending the state sales tax to a wider range of services, they are likely to face similar resistance.

The cautionary tales from peers in Louisiana, Georgia, Kansas and Nebraska should put a halt to tax cut proposals in North Carolina. Instead of following failed models, North Carolina should reclaim its status as a leader among states and pursue better options for changing our tax code – ones that support economic opportunity and create a strong foundation for economic growth.