NC Budget and Tax Center

On Wednesday, the Senate Finance committee heard presentations that made the case for more changes to the state’s tax code. While beginning with many of the economic realities in North Carolina—stagnant and falling wages, persistently high poverty, and slow growth— the presentation prescribes the wrong medicine: more cuts to the income tax in favor of applying the sales tax to more goods and services.

It’s a surprising conclusion to reach as prior “reform” efforts based on income tax cuts for the wealthy and profitable corporations have not allowed North Carolina to invest in the state’s economic recovery. It’s even worse with evidence mounting that shifting more of the tax load onto average people is causing real damage.

It’s clear that more tax cuts for the wealthy and profitable corporations aren’t the best tools to address the economic issues highlighted in the presentation. Tax cuts do nothing to address the fact that workers aren’t seeing their wages grow, despite increasing productivity. Tax cuts that primarily benefit the wealthy and profitable corporations do not help alleviate poverty. Instead, such an approach jeopardizes the ability of the state to invest in pathways to opportunity—the schools, research and development, and business start-ups that create a vibrant economy.

We have long advocated for tax reform, and a genuine and thoughtful plan to modernize our tax code is still needed today – not in spite of 2013 tax changes, but because of them. But shifting the state away from the income tax to rely more on sales taxes, as the leadership presented yesterday, will make things worse, not better. It will not help address the ups and downs in revenue collections and will mean that everyday North Carolinians carry more of the tax load while wealthy taxpayers get a tax cut. This is especially true if such tax shifts don’t seek to offset a greater reliance on sales tax with a strong state EITC.

Here is what should be the focus of legislators’ reform efforts: Read More

NC Budget and Tax Center

When putting together a budget, the debate typically entails where funding has expanded, what new initiatives have been introduced, and how much funding has been cut. However as North Carolinians are learning, when the baseline for comparison changes, spending that was once guaranteed may go away and new initiatives may only serve to undercut other important public investments that drive the state forward.

The base budget, or continuation budget, has traditionally been the starting point estimate of what North Carolina’s policymakers needed to invest to maintain current service levels. As we have written about before, recent changes to what is included in the base budget— removing enrollment growth, for example —has meant a shifting foundation upon which assessments are based. Rather than increasing transparency, this change masks just how little improvement there is in the Governor’s budget proposal.

Better information about what is in and what is now out of the base budget is needed so that the public can better understand whether so-called expansions are truly that or are just keeping up, and whether new initiatives are financed sustainably or through cuts to core programming. The Department of Public Instruction submitted a request that included a greater amount of investments than were ultimately funded as did the courts.  As an example, DPI requested $69.9 million in added investment to their base budget but got a cut of $56.3 million in their base budget. Specific details for all areas of the budget are needed to understand what is in and out of the base funding.BTC - Base Budget

In a preliminary look at the Governor’s budget, it is telling that the continuation budget (or base budget) for FY 15-16 falls $235 million below the current fiscal year budget spending. Moreover, as my colleague noted in a post yesterday, the proposed appropriation level by the Governor covers nearly exactly the enrollment growth costs forK-12 education, universities and Medicaid. In previous budgets, these enrollment growth costs would have been part of the base budget. Expansion items, such as further pay raises or increased foster care payments, are the result of shuffling the deck—moving dollars around without meaningfully reinvesting overall.

Pre-recession levels can also be used as a point of comparison in this budget debate to demonstrate the lack of reinvestment. Looking in this way, the Governors recommended appropriations remains $1.4 billion lower than the spending level at FY 07-08 despite a growing population and the state surpassing the fifth year of the economic recovery.

Changes to the base budget make clear that very little progress can be made by state policymakers as long as revenues come in under projections as a result of the costly tax plan since revenue growth is not keeping up with growth in enrollment and other program costs.

 

NC Budget and Tax Center

The “tough choices” Governor McCrory says he made in his just-released budget proposal were self-inflicted. They come from tax cuts that primarily benefit the wealthy and profitable corporations, meaning there is too little left to invest in education and other building blocks of a strong economy.

Also troubling is the Governor’s use of changes to the budgeting process to mask the state’s inability to keep up with growing needs. It’s wrong to abandon longstanding practices that have served North Carolina well just to avoid debate over failed tax policies. Budget tricks won’t hide the fact that this will make it even harder in the future to promote broad prosperity.

NC Budget and Tax Center

In a piece released on Monday, Paul Krugman reflected on the decision by Walmart to raise the minimum wage of its workers. He notes that this will likely lead to many more companies following suit. Indeed TJ Maxx-Marshalls has already signaled that it will do the same for its workers this year.

More than moving business to act, these private sector initiatives signal that the economic arguments—reduced turnover, higher productivity, improved morale– for raising the minimum wage standard through public policy make good sense. As Krugman points out:

What this means, in turn, is that engineering a significant pay raise for tens of millions of Americans would almost surely be much easier than conventional wisdom suggests. Raise minimum wages by a substantial amount; make it easier for workers to organize, increasing their bargaining power; direct monetary and fiscal policy toward full employment, as opposed to keeping the economy depressed out of fear that we’ll suddenly turn into Weimar Germany. It’s not a hard list to implement — and if we did these things we could make major strides back toward the kind of society most of us want to live in.

The bottom line is that the choice to keep the minimum wage standard low as a matter of policy no longer makes sense for workers or businesses. It’s time for policymakers to follow these leaders and raise the minimum wage.

NC Budget and Tax Center

The News & Record had an editorial this weekend on the inconsistent choices policymakers have made as it relates to tax code spending. Some tax breaks have ended while others remain and even may get expanded this session. From the piece:

Tax breaks for movie productions and historic property renovations are out. Tax breaks for more data centers are in. The North Carolina legislature is still picking “winners and losers,” but the criteria have changed.

The bottom-line is that policymakers have not established the appropriate processes to evaluate tax code spending and base their decisions on the results of such analysis. Nor do they have a set of economic development goals that reflect the realities of different regions and the needs of North Carolinians.

The result is that the pursuit of ideological purity by eliminating all tax breaks no matter their public good often falls prey to the influences of various political forces that continue to carve out special tax breaks, often inconsistently.

As we noted in a recent piece on the options available to policymakers to address the revenue shortfall, a renewed look at tax code spending is needed. So too is a criteria and process for evaluating that spending against a set of shared and relevant goals for our economy.