NC Budget and Tax Center

ICYMI North Carolina ranks high for states with declining middle class

Last week, USA Today highlighted new analysis of Census data identifying where the middle class is dying across the country due to the failure of wages to grow for this group.  The analysis looks at income earned before taxes of those households in the third quintile, the middle 20 percent of earners in each state.

North Carolina ranked 4th among states for its decline in income for those in the middle of the distribution. From the analysis:

The highest earning 20% of North Carolina households have an average income of more than $166,000, up 3.3% since 2010. Meanwhile, the income of a typical middle class North Carolina household fell by 1.8%, more than twice the comparable national income decline of 0.7%.

As the story makes clear, the challenge for the broader economy of such declines in income for the middle class is real since consumption comprises a significant component of growth as measured by GDP.  To read more, check out the original analysis here.

NC Budget and Tax Center

Focus on wages to ensure the future of work works for all North Carolinians

The Institute for Emerging Issues wrapped up its forum on the future of work yesterday. The forum brings together leaders from across the state each year to discuss issues of importance to the well-being of the state. This year the topic was the future of work– the ways in which automation and technology are changing how we work and the relationship between workers, employers, consumers and communities.

Despite the projections and well-intentioned guesses about what the future will bring, no one knows for sure what the outcome will be.  What we do know is what we do today can support better economic outcomes for more families, businesses and communities in the state.  Research is clear that wage growth and public policy will be key to ensuring that the future of work has the number and quality of jobs that can boost the economy for everyone.

If this sounds familiar, it should. North Carolina’s wage problem is front and center in the daily lives of workers and the communities where they live today.  Without wages that ensure workers can provide for the basics and spend locally, employers struggle to see the demand for goods and services that allow them to expand and communities are challenged to support the opportunities that build the long-term potential for children’s economic success as adults.  North Carolina’s uneven recovery and elevated hardship today are indicators of what happens when policy doesn’t focus on wages or the ways in which all communities can connect to economic opportunity.

On the first day, a panel of policymakers, Senator Chad Barefoot and Speaker Tim Moore, were joined by Rick Glazier with the North Carolina Justice Center and John Hood with the John Locke Foundation to discuss just where policy can ensure that the future of work delivers greater opportunity and shared prosperity.

John Hood highlighted the critical goal of ensuring that workers have the “capital” to meet their needs and make investments that support advancement of themselves, their families and build assets in their community.  This is indeed the goal and a broadly shared one that is the concern of the vast majority of North Carolinians. A workers’ ability to make ends meet and spend is what the economy needs to function well and expand.  That is why a focus on boosting wages and what communities need to do so, not on reducing the size of government, is needed.

The solutions are readily available to North Carolina policymakers today. They are proven ones that will strengthen the economy for the future. To grow wages, North Carolina must: Read more

NC Budget and Tax Center

Supporting Home-Grown Entrepreneurs A Better Job Creation Approach

Supporting homegrown startups and young, fast-growing in-state companies is likely to be a more effective strategy for states to create jobs and build a strong economy than across-the-board tax cuts and other attempts to lure businesses from elsewhere that many states pursue today.

A new report released by the Center on Budget and Policy Priorities titled “State Job Creation Strategies Often Off Base highlights findings from new research showing that the vast majority of jobs are created by businesses that start up or are already present in a state. The report’s authors conclude that “many state policymakers pursue economic development strategies that are bound to fail because they ignore these fundamental realities about job creation.”

When states pursue tax cuts, they divert resources needed to help home-grown startups and young, fast-growing companies deliver maximum job growth and to build a climate that supports their growth.

Never has the cost of tax cuts to job creation been clearer than in North Carolina where state leaders’ pursuit of income tax cuts has reduced dollars targeted to help entrepreneurs in North Carolina build out their ideas and grow their enterprises. State support for community development finance institutions that support small business development in underserved communities has declined, direct investments in main street revitalization in small towns and cities, and rural economic development and infrastructure have also been significantly restricted in recent years. Meanwhile, North Carolina has failed to pursue many of the best practices in other states that take the best research and development to scale, promote innovative community economic development planning locally through targetted grants or most basically to sufficiently support the best business ideas in local communities that can achieve more inclusive economies. At the same time, public investments that are the foundation of a quality life—investments in good quality schools, parks and recreation—have eroded in our state putting at risk key foundations of entrepreneurship and innovation.

This new research in the report uses improved data to better inform our understanding of which businesses create jobs, and where they create them – calling into serious question the value of large-scale tax cuts and the various other tax breaks states typically offer businesses to move. Among the facts that counter ineffective tax-cut strategies:

  • About 87 percent of private-sector job creation from 1995 to 2013 in the median state was “home grown.” The job creation came from startups, the expansion of employment at existing establishments, and the creation of new in-state locations by businesses already headquartered in the state.
  • Large income tax cuts that a number of states have enacted or are proposing are especially poorly suited to helping startups and other rapidly growing firms, in part because these businesses often have little income in their early years.
  • The most commonly cited reason among entrepreneurs for starting their companies where they did was that it was where they lived at the time. Eighty percent of these entrepreneurs lived in the city where they started their companies for at least two years prior to starting their business. A survey by Endeavor Insight consulting firm concluded that founders of fast-growing companies decide where to live based on personal connections, the talent of the local workforce, and quality-of-life factors. Only five percent of these successful entrepreneurs even mentioned taxes as a reason why they founded their companies where they did.
  • To promote and assist job-generating entrepreneurship, states would be wise to invest in schools and colleges, improving workers’ skills, and maintaining communities that are attractive to residents who want to start a business. Successful entrepreneurs report these factors were key to where they founded their companies.

Bottom-line: Homegrown startups and fast-growing firms already in the state are much more important sources of job creation. Public investments that help build a skilled workforce and improve the quality of life for local residents are better bets for supporting real economic progress.

 

NC Budget and Tax Center

Forbes prints inaccurate claims about unemployment insurance changes in North Carolina

A recent opinion piece in Forbes Magazine wrongly claims that steps North Carolina took to reduce how much unemployment insurance provides to jobless men and women – and make it harder to collect – are somehow helping North Carolina’s economy.

Nothing could be further from the truth.

The article, written by North Carolina’s rightwing Civitas Institute and one of its business partners, heralds the underreported tax cut bonanza in the unemployment insurance as driving workers into employment and employers to create jobs.

In reality, North Carolina’s overhaul of unemployment insurance devastated a system meant to protect the economy from lower consumer demand that happens when job losses mount through no fault of workers.

As policymakers sought to pay down the debt incurred because of historic job loss during the Great Recession and an insufficient Trust Fund resulting from years of tax cuts, they pursued a lopsided approach. They called on jobless workers to pay far more through cuts to their unemployment insurance payments, reducing the number of weeks they could collect UI, making the system harder to access, and  limiting  job training or workforce development opportunities.

The result:  North Carolina went from being not particularly generous _  the middle of the pack among all states _ to downright stingy, at the bottom.

In the third quarter of 2015 (the latest data available):

  • Just 11% of the state’s unemployed receive unemployment insurance which ranks us last in the country
  • The state’s average weekly benefit was $233.69 — 46th in the country. Average weekly benefit as a percent of average weekly wage was 27 percent — 44th in the country.
  • The average duration for collecting UI was 11.5 weeks – dead last in the country.

Before the changes went into effect, the story wasn’t nearly so bad.  The measures:

  • The state had a 39% of unemployed workers receiving unemployment insurance in the second quarter of 2013 which ranked us 24th
  • The state average weekly benefit was $301.06 –   25th in the country.
  • The state average benefit duration was 15.9 weeks – ranking us 31st.

In 2013, the Tax Foundation, a conservative organization that policymakers often quote, ranked North Carolina’s UI system fifth most favorable to business in the nation. Only Arizona, Oklahoma, Delaware and Louisiana scored higher. That was BEFORE the unemployment insurance changes.

Today, employers contribute to the system just one penny for every $100 of wages paid and the average tax rate of 2.2 percent is below what the US Department of Labor determines to be adequate.

Perhaps most troubling in the arguments of those inclined to ignore economic realities is the suggestion that the system was rife with fraud and was discouraging people from seeking jobs.  The facts are otherwise. Read more

NC Budget and Tax Center

Not the conversation you read about in today’s paper

The 2016 Economic Forecast Forum held signs that the policy discussion may be starting to take the long-term economic challenges facing the average North Carolinian and poor communities more seriously. Hosted by the NC Chamber of Commerce and NC Bankers Association, the annual forum is not always the first place you expect to hear arguments for more public investment and taking stagnant wages seriously, so it was nice to witness yesterday.

The morning panel in particular delivered a nuanced discussion of how to balance taxation and the need for public investment, done with honest recognition of how people and communities are getting left behind in the current economy.  Distinguished economists offered their thoughts on how North Carolina can continue to compete and central to that was a grappling of how to make the economy work for more people. They took the obligatory moments to laud cuts to marginal tax rates, say some broadly polite things about the 2013 tax cuts, and muse on the possible benefits of privatization. But more notably, particularly for the venue, was the recognition that public investments do play a positive role in the economy, that stagnant or falling wages and high poverty rates hold us all back and that communities must have more tools to build a viable economic future.

Governor McCrory ended the day with themes that echoed some of what had been discussed in the morning. The Governor touted recent tax cuts, and implicitly claimed credit for the jobs created during the recovery, among other key points for the stump this year. However, amidst the prepared lines, McCrory also recognized that we still don’t have enough jobs, wages aren’t growing, and we need to upgrade a lot of public infrastructure. The governor made the most impassioned plea for more public investment while pitching the $2 billion ConnectNC Bond, which will be on the March 15th primary ballot. Perhaps even more strikingly, Governor McCrory recognized that if the bond is approved, it won’t meet the infrastructure needs of a growing state.

Among the messages that I left with that I hope we all carry with us into 2016: Read more