NC Budget and Tax Center

House Finance Committee considering bill to amend state constitution tonight

UPDATE:  House Finance was cancelled last night.  Stay tuned.

In another last-minute consideration of a major policy change, the House will take up a bill (Senate Bill 75) this evening (15 minutes after session ends) that would amend the state Constitution to permanently cap income tax rates at 5.5 percent. Lawmakers have already proven that they can cut income taxes without changing the state Constitution — they have been doing it since 2013.

Having the maximum rate for income taxes set in the state Constitution limits the tools future policymakers will have to meet the needs of a growing state; to make up the funding difference from the likely federal cost shift that is proposed on Medicaid, food assistance and other key services; or to address unexpected natural disasters or major economic disruptions.

This constitutional amendment locks in the tax giveaways for millionaires since 2013 and will likely just shift the tax load even more onto middle- and working-class families.

Here is more information about the proposed change to the Constitution.

Audio of the House Finance Committee meeting may be available here.

2018 Fiscal Year State Budget, NC Budget and Tax Center

Price tag for tax cuts in final budget tells half the story

The Locke Foundation was having fun with math yesterday in an effort to defend a fiscally irresponsible package of tax cuts in the final budget lawmakers are close to approving. Why? because—wait for it—they would like you to think they haven’t just given another green light to tax cuts that further pump up the gains for wealthy taxpayers while making virtually no progress in addressing the tax load carried by middle- and low-income taxpayers.

Amidst their convoluted and selective use of the numbers, they try to confuse their readers about three primary facts regarding the state’s tax code after the passage of this budget:

  1. The average tax cut received by the taxpayer in the top 1 percent (whose average income is $1 million) compared to the pre-2013 tax code is nearly $22,000, which is more like 96 times the tax cut that the middle-income taxpayer in North Carolina will receive each year as a result of tax changes since 2013. The average tax cut for middle-income taxpayers is $225.
  2. Once the final budget passes, one in three of net tax cut dollars goes to the top 1 percent of taxpayers, whose average income is a million dollars. Under the final budget, nearly 80 percent of net tax cuts since 2013 will flow to the top 20 percent of taxpayers once all the latest tax code changes are fully implemented.
  3. When we look in isolation at this year’s tax plan, policymakers may have paid attention to their egregious track record when it comes to addressing the tax load for most North Carolinians but they have fallen short of setting our tax code right. Their final tax plan still gives the wealthiest taxpayers the majority share of the net tax cut compared to current law. And their full track record shows their failure to put middle- and low-income taxpayers front and center as they make their tax policy decisions. Budget writers and supporters don’t want to talk about all the changes that have happened since 2013, the loss of the personal exemption and other credits and deductions that benefited working families, including the Earned Income Tax Credit and the Child and Dependent Care Tax Credit, as well as the broadening of the sales tax.

Still worse, with this final budget they continue to push us further towards a single revenue option in addressing future downturns—raising the sales tax, which will inevitably mean asking more from low- and middle-income taxpayers again.

Rather than try to present and sell tax cuts that largely benefit the wealthy and profitable corporations as the everyman approach to growing the economy, which it isn’t, a more urgent math problem needs to be worked out, sooner rather than later. Read more

2018 Fiscal Year State Budget, NC Budget and Tax Center

Failed tax-cut experiment will continue under final budget agreement, pushes fiscal reckoning down the line

The final budget agreement from leaders of the House and Senate puts North Carolina on precarious fiscal footing in the second-half of the second fiscal year of the two-year budget and beyond.  The tax changes that leaders agreed to—which were less a compromise and more of a decision to combine the tax cuts in both chambers’ proposals—make the cost of these tax cuts bigger than what either chamber proposed.

The cumulative cost of major tax changes since 2013 will be at least $3.5 billion annually.

Because of the way that the budget phases in the tax changes, budget writers only report on half of the fiscal year impact of the tax changes that include rate reductions for personal and corporate income, an increase in the standard deduction, conversion of the child tax credit to a deduction and sales tax changes.  The reality is the full cost of the tax changes proposed will mean the state has $1 billion less than they would have had under current tax law.

That means that in the creation of the next two-year budget, beginning in Fiscal Year 2019-20, legislators will have to cut current service levels that are already broadly recognized as falling far short of need, or raise revenue to meet the demands of a growing state population.  Given federal uncertainty, even the investments they suggest will be made will be put in jeopardy by their tax choices and decision to hide the full impact of the tax changes.

Compared to pre-2013 tax law, the new changes to the tax code, coupled with other changes since 2013, will deliver an annual average tax cut to the top 1 percent of taxpayers of $22,000 while the bottom 20 percent of taxpayers will receive an average annual tax cut of just $16 each year.  Of those in the bottom 20 percent of taxpayers, only 39 percent will receive a tax cut. Read more

NC Budget and Tax Center

Kansas’ experiment yields valuable lessons

This is a guest blog post from Heidi Holliday at the Kansas Center for Economic Growth

You’re welcome, America. Our state, Kansas, just wrapped up a 5-year long experiment in governance from which the other 49 states can now glean some important lessons. The Kansas Legislature has voted to roll back much of the 2012 package of tax cuts that sent the state into a downward spiral of financial instability and weakened the Kansas’ public schools, universities, Medicaid program, and virtually everything else that the state funds.

With the state facing yet another budget shortfall of $900 million, government leaders decided that enough was enough. Governor Brownback, who heralded the 2012 experiment, was proposing yet more temporary band-aid approaches and more cuts deal with the shortfalls. The Legislature chose a different path and instead sent the Governor a bill that would raise more than $1.2 billion in new revenue over two years by, among other things, repealing a costly tax break for pass-through income, rebalancing individual income tax rates by reinstating a third tax bracket, and reversing course on the Governor’s plan to eliminate our state income tax. Brownback vetoed the legislation but, with bipartisan support, the House and Senate quickly overrode the veto.

Our state has begun the path to fiscal stability and is closer to becoming a model of good policy choices as much as it is a cautionary tale. The damage done to Kansas from this reckless experiment will not be undone overnight, but other states need not wait to act upon the lessons learned.

Put simply, revenue matters. You can’t get something for nothing. We all want and deserve thriving communities with great schools, parks, and modern roads and bridges; and we chip in to pay for that. That’s what taxes are for.

Because of the scope of the 2012 changes, it didn’t take long before Kansans in every corner of the state began connecting the dots between the actions of state lawmakers and the quickly eroding quality of the things that make for a good economic foundation in every community. With every subsequent shortfall, the picture became more clear. Meanwhile, the promised economic boom—and the revenue rebound that would supposedly follow—never happened (as economists predicted). In the last few election cycles, voters have viewed candidates and their promises through a different lens, and the 2017 Legislature had the experience and public backing to chart a new course.

Most state tax codes, including ours, need further reform, but it’s high time that state tax policy adhere to one basic, proven (and now proven once again) principle – states need revenue to invest in the things that create thriving communities and a prosperous economy. Kansas just learned this lesson again, the hard way, so that your state doesn’t have to. You’re welcome.

2018 Fiscal Year State Budget, NC Budget and Tax Center

Bipartisan group of Kansas legislators stops failed tax-cut experiment

As North Carolina’s General Assembly begins the process of reconciling the budget proposals from the House and Senate, they would be wise to look to the newspapers in Kansas today.

A bipartisan supermajority of both houses rejected Gov. Brownback’s tax cutting agenda and choose a different approach—funding the programs and services that can grow the economy stronger and for all through a $1.2 billion revenue package.

This leadership from the Kansas Legislature came as cuts to schools, health care and infrastructure were mounting, the state’s fiscal stability was questioned by rating agencies, and many tax-cut supporters lost their bid for re-election in the Fall of 2016.

As Nick Johnson with the Center on Budget & Policy Priorities noted in a statement:

“Kansas’ five-year experiment shows us what happens when we try to tax-cut our way to prosperity, but the legislature’s action reminds us that we have other options.”

North Carolina Representatives and Senators, we too have better options.