Is 2008 as good as it gets?
Thanks in large part to the rebound in the personal income tax, North Carolina is finally experiencing a slight uptick in revenues as the tepid economy slowly improves. Yet, at the first sign of revenues recovering, state lawmakers are pursuing tax policies that will pull back investments prematurely. North Carolina is already in a hole, and the tax plans being debated would make it very difficult for the state to dig itself out, make progress on unmet needs, and move forward.
These tax plans cut taxes for the wealthy and profitable businesses at the expense of everyone else. Proponents claim that these deep and lopsided cuts will create jobs and benefit everyone, but research simply does not support this conclusion.
We do know that such deep tax breaks for the wealthy will translate into deep revenue losses that hurt the state’s ability to invest in things like public education. Once fully implemented, the Senate tax plan will cost the state $1.3 billion in revenue annually and the House tax plan will cost $650 million.* And, over five years, they cost $4.8 billion and $2.2 billion, respectively.
Deep revenue losses will accumulate overtime and make it much more difficult for North Carolina to rebuild a strong economy and help children, families, and communities to thrive. I use the word rebuild because North Carolina has not yet restored the damaging cuts made during the Great Recession—a reality that the Governor, legislative leadership, and backers of their flawed tax plans continue to overlook.
State investments are currently more than 11 percent below 2008 pre-recession levels. The hole is even deeper in many areas of the budget, and state spending as a share of state personal income is at a four decade low. So, it is not surprising that there are long waiting lists for many services for our children and seniors.
Senate and House leadership says that their plans merely slow the rate of state spending to around 3 percent and 4.5 percent, respectively, compared to the long-run average of 4.8 percent. But the bottom line is that in 5 years there will be more children to educate, more seniors to care for, and more citizens to serve and protect—but if either tax plan becomes law, there would not be enough dollars to keep up with demand for public services.
Will 2008 be as good as it’ll get for North Carolinians? We hope not.
This is the first post of a week-long blog series that will uncover just how far behind North Carolina’s current services levels are compared to pre-recession levels. The series will also discuss how damaging leadership’s plan to slow the growth rate in state investments would be and how it will hurt state services.
*These figures represent net tax code changes. And the House figure includes both the tax plan plus the cost of the estate tax repeal.