NC Budget and Tax Center

North Carolina can afford smaller class sizes, but not with corporate tax cuts

The next wave of disruptions to children’s educational success will not be another recession — it is the result of the decision by policymakers to put tax cuts ahead of that goal.

Policymakers should not get credit for acknowledging that smaller class sizes are important to children getting to third-grade reading proficiency and succeeding in school until they put the resources behind it.

Instead, state leaders passed another round of personal and corporate income tax cuts in the final budget this summer that will reduce state revenues by $900 million when in effect for a full fiscal year.  The reduction of the corporate income tax rate from 3 percent to 2.5 percent alone will account for roughly $100 million in revenue that could otherwise have been a down-payment on their pledge to reduce class sizes.

Funding the class-size reductions mandated by the same General Assembly would require at least $300 million.

Here’s why stopping the 2019 corporate income tax rate cuts is an important first step for policymakers to take immediately to prove their commitment to children’s educational success. Read more

NC Budget and Tax Center

Statement on final GOP tax plan from Alexandra Sirota, Director of the Budget & Tax Center

The tax plan passed by Senate Republicans is an expensive giveaway to major corporations and wealthy households that offers little or nothing to most families and ultimately hurts many. The plan will end health care for millions of Americans, raise premiums, and increase deficits, which will in turn be used to justify dangerous cuts that will threaten working families. It is no surprise that this is the most unpopular tax legislation in three decades.

This was just the first step in a two-step agenda that will seek deep budget cuts that would further hurt low- and middle-income people by targeting everything from nutrition assistance for families to education, Medicaid, and infrastructure. And because proposals to cut federal spending almost always involve shifting costs down to state and local governments, this agenda will put even more pressure on North Carolina’s budget, with cuts to state services with widely shared benefits—such as schools, roads, parks, and libraries—likely to follow.

Because of our own flawed experiment with trickle-down economics, our state is challenged to even sustain current service levels for the growing population. Further cuts to federal funds to deliver services in North Carolina—used in the final budget for priorities like NC pre-K and infrastructure—should lead to a suspension of scheduled tax cuts in the state in January 2019.

The whole North Carolina delegation should commit now to stand against budget cuts that would further hurt everyday Americans and North Carolinians. The General Assembly should follow suit and commit to planning for the cost shift likely to leave even more needs unmet in the future.

For more on the impact of the final tax plan on North Carolina, see the following analysis by ITEP:

How the Final GOP-Trump Tax Bill Would Affect North Carolina Residents’ Federal Taxes

 

NC Budget and Tax Center

Now is the time to rebalance the state’s unemployment insurance system

New research from The Century Foundation released today finds that the recovery of Unemployment Insurance Trust Funds nationwide presents an opportunity to rebalance the approach taken during the Great Recession and its aftermath.

The approach taken in several states, including North Carolina, included significant changes that reduce the weekly unemployment insurance amount, the duration of weeks and limited eligibility across a range of other measures.

Given the opportunity of the ongoing economic expansion, states are able now to ensure that the Unemployment Insurance system is well-positioned to serve its role in stabilizing the economy during a downturn.  Doing so will require ensuring that the weekly benefit amounts achieve an adequate level of wage replacement, that the weeks available ensure workers can find new jobs or be retrained (as is increasingly necessary) for new careers, for example.

Here are the core findings from the report: Read more

NC Budget and Tax Center

Growing the deficit will lead to immediate cuts to core programs in our communities

Congress follows several deficit-control mechanisms that govern tax and spending decisions in any given year to ensure that the deficit does not increase and spending is arbitrarily constrained.

PAYGO, funding caps and are all in play now that the House and Senate have both voted to grow the deficit by at least $1.4 trillion over the next decade.

Since the tax changes proposed would drive multi-year deficits, they must be offset by the equivalent amount according to the 2010 Statutory Pay As You Go Act (PAYGO).  As the Congressional Budget Office reported before the Senate vote, the Senate Tax plan will trigger automatic cuts to Medicare that would total $25 billion, as well as many other programs including those supporting farms and rural investment and student loans.  See this helpful visual to see the range of programs that could be affected by PAYGO with a Congressional vote to grow the deficit.

Funding caps and sequestration — across-the board and automatic cuts — would also likely be required in the next year.  Despite efforts to lessen the harm of this flawed approach to budgeting in 2013, 2014 and 2015, it is unlikely that there will be the will to take the same approach in 2018, particularly after lawmakers in Congress have voted to grow the deficit.  The result will be accelerating further the historic decline in spending on education, health care, economic development and housing.

For a helpful overview of these statutory deficit-control mechanisms, see this piece by the Center on Budget & Policy Priorities.

NC Budget and Tax Center

Statement on U.S. Senate Tax Plan from Alexandra Sirota, Budget & Tax Center Director

The tax plan, passed today out of committee, now moves to the U.S. Senate floor. It will deliver the greatest benefit to the rich, raise taxes on many middle- and low-income taxpayers, and grow the federal deficit.  The harm to North Carolina will be felt in every community as an estimated 400,000 North Carolinians lose health insurance and investments are cut that connect people to jobs, connect businesses to markets, and strengthen our economy.  North Carolina’s Congressional delegation must slow down their rush to pass an overhaul of the tax code that benefits so few and ensure that federal tax policy is not paving the way for more harm to our state.