The News & Observer has been running a timely, important series this week on North Carolina spending billions of dollars on tax breaks with little attention to whether they deliver the jobs and economic growth supporters claimed would result — or otherwise contribute to the common good.

Because they are enacted through the tax code rather than the state budget, various tax breaks for special interests largely evade the annual scrutiny that the rest of state spending undergoes.  So each year the state loses precious resources that could have been invested in our schools, roads and bridges, and other services that people and businesses rely on and that help build a strong economy.

In recent years these tax breaks have grown faster than other areas of state spending. Read More…

One of the untold stories of Governor McCrory’s budget is the lack of investment in the UNC system’s need-based aid.  Given the fact that the Governor has prioritized the preparation of North Carolinians for jobs of the future, it is surprising that he hasn’t recognized the importance of need-based aid to increasing completion rates.

The evidence on this point is clear.  Need-based aid can support students to completion by reducing their need to take on jobs to pay for school or to take on high cost loans.  Moreover, future jobs will increasingly require some type of post-secondary credential or degree, according to analysis by the Georgetown University Center on Workforce and Education.

As we have written about in the past, a bachelor’s degree provides students with not only an earning boost but some level of protection against unemployment.  But the benefits extend beyond the individual to the broader economy: an educated workforce trained for jobs and for active participation in their communities contributes to the state’s competitiveness and quality of life.

The Governor’s budget invests just $122.6 million in the UNC Need-Based Aid program, down from a Great Recession-recovery peak of $173.25 million in 2010-11.  The result would be 10,393 fewer students receiving need-based aid.  And while tuition at North Carolina’s public universities continues to rise, more and more students will find it difficult to afford a post-secondary education.

The first official tax reform bill was filed yesterday by Senators Clodfelter, Hartsell, Jenkins and Meredith.  The legislation takes a comprehensive approach, proposing significant changes to the personal, corporate, franchise and sales taxes including: the reduction of personal income tax rates to a single 6% rate with a zero bracket on income under $11,000 and elimination of the state EITC, the reduction of the corporate income tax rate to 6% and elimination of a number of loopholes and tax breaks, the expansion of the sales tax base to some services, a decrease in the state sales tax rate and the sharing of food tax revenue collected locally with the state.

Unfortunately, the overall plan is based on the false premise that tax cuts are necessary to support economic growth.  Research released just yesterday shows that the biggest tax-cutting states in the 1990s  experienced slower income growth than other states on average, and states that enacted major personal income tax cuts in the 2000s prior to the recession were as likely to lose economic ground as to gain it.

More complete analysis will be forthcoming on this proposal.  But at first glance, these tax cuts are unlikely to boost the state’s economy while harming the overall ability of the state’s tax code to balance  contributions from taxpayers across the income spectrum.

Governor McCrory released a budget today that falls short of returning us to pre-recession levels but does expand investments in critical areas. The budget assumes that available revenues will remain the same as collections under the current tax system and benefits from slight improvements to revenue collections due to improved economic performance. The Governor is therefore primarily able to expand investments in certain areas by reducing spending in others and relying on tuition increases and other fees.

Notably, the Governor fails to define the tax changes he would consider as part of a tax reform effort representing another missed opportunity and a signal that piecemeal changes to the tax code are acceptable. Indeed, the Governor commits to repealing the state’s estate tax which benefits multi-million estates. Last year, just 23 estates paid the state estate tax.  Read More…