News that revenue is up in North Carolina doesn’t mean that we have what is needed to meet our state’s growing needs. In fact, total state revenue for the second quarter of fiscal year 2016 was below the level of revenue raised for the same period prior to the end of the Great Recession, fiscal year 2008, when adjusted for inflation.
By contrast, a majority of states experienced state tax receipts (adjusted for inflation) that exceeded their respective peak levels before the end of the recession in the third quarter of 2015, based on BTC’s analysis of most recent state tax collections data provided by the U.S. Census Bureau.* North Carolina ranked 34th worst among states, with tax revenue below its peak quarter prior to the end of the recession. The recent revenue outlook report from the General Assembly’s Fiscal Research Division highlights that we still have not reached this peak revenue level.
News from state officials that as of December 2015 revenue was up over the year still does not signal that North Carolina is collecting revenue in line with our state’s growing needs.
State leaders’ insatiable appetite for tax cuts largely explains why state tax revenue for North Carolina has yet to return to its peak pre-recession level, despite an improving national economy. The huge, costly tax cuts passed since 2013 greatly reduced annual revenue that otherwise would have been raised under the old tax system. Once all tax changes are fully implemented, annual revenue loss will total more than $2 billion dollars.
The massive revenue loss from tax cuts challenges our ability to make investments in the foundation that help move our state forward. State leaders claim that providing all teachers a meaningful raise is unrealistic. State funding per student for public schools remains below its pre-recession spending level when adjusted for inflation. State funding for our public universities is 16 percent below pre-recession spending while tuition and mandatory fees increased by nearly 43 percent during this period. Tuition at community colleges has increased by 81 percent since 2009. More than 6,400 fewer state-funded slots are available for NC Pre-K than in 2009 despite more than 7,200 children being on NC Pre-K wait lists last year. State support to help promote economic development in rural and distressed communities across the state has been cut drastically in recent years. Inadequate state support to help unemployed and underemployed North Carolinians retool and retrain in order to secure better paying jobs to support their families persists. These are examples of foregone opportunities to invest in our people and our future.
Proponents claim that tax cuts will spur economic growth and new jobs and that all North Carolinians benefit. The reality, however, is that tax cuts have largely benefited the already well-off and profitable corporations. The resulting tax shift means that low- and middle-income taxpayers now carry a greater tax load amid stagnant and declining wages and an unequal economic recovery that has bypassed many areas across the state.
State lawmakers frequently proclaim their commitment to ensure that North Carolina is positioned to compete for good-paying jobs. However, policy decisions in recent years – particularly passing costly tax cuts – don’t align with their rhetoric. Business leaders look to more than tax rates when determining where to locate and retain their businesses – a skilled and educated workforce, modern infrastructure, high-quality schools, among other things also matter. Yet the lack of adequate investments in these core public services is the casualty of costly tax cuts that have greatly reduced our ability to invest in our future.
Supporters of tax cuts are likely to point to any upward tick in state revenue and improvement in the economy as evidence that tax cuts work. However, the reality is that North Carolinians have been dealt a doubly bad deal. The significant loss of revenue from the costly tax cuts means that we forego bolstering public investments that promote opportunity for all North Carolinians. Furthermore, the tax shift that state leaders have ushered in will continue to make it difficult for low- and middle-income families and individuals to get ahead. And for this, we all lose.
*Note: For BTC’s analysis highlighted in this blog post, quarterly revenue is adjusted for inflation and smoothed using a four-quarter moving average. State comparisons are based on each state’s peak level since 2006 to capture the effects of the Great Recession. Note that quarters are based on calendar, not fiscal, year.