Big Money Campaigns Won’t Mask Reality of Tax Shift Proposals in Raleigh

April 19, 2013 at 9:11 amCategory:NC Budget and Tax Center | Uncategorized

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The expensive marketing campaign that an extreme, anti-government national  group launched in North Carolina this week to promote a great tax shift that will hurt the state’s economy flies in the face of the facts.

Arlington, Virginia-based Americans for Prosperity is throwing financial weight behind a plan that would  drastically cut North Carolina’s corporate income and personal income taxes. The billions of dollars in tax revenue lost due to the tax cuts would be replaced largely through a higher, expanded sales tax – or, just as bad, they won’t be replaced and North Carolina will lack the resources to  invest in the building blocks of economic growth.

Here are the facts that no amount of money spent on marketing can cover up:

  • At least 60 percent of North Carolina taxpayers would see their taxes increase — but the wealthiest 1 percent would get a tax cut.  Under the concept being supported that would eliminate the personal and corporate income tax, a family earning $24,000 a year would see its taxes go up $500, while a family making $1 million a year would get a $41,000 tax cut. This is primarily because the sales tax would need to expand and increase to bring in the same revenue.  That sales tax rate could be as high as 12.5 percent to make up for the revenue loss from personal income tax elimination alone.
  •  North Carolina will not reap any short-term benefits from simply cutting taxes. Every dollar given away in a tax cut has to be made up for with a tax increase on another business or individual or with a cut to state services. At best, any benefit from a tax cut will be offset dollar for dollar, and result in no net economic  growth in the short-term.
  •  Cutting state and local income taxes does not boost the economy.  Among many similar studies a rigorous analysis by the Congressional Research Services clearly shows no relationship between top tax rates and rates of savings, investment and productivity growth.
  •  Businesses hire when customer demand for what they sell increases. Taxes have nothing to do with that. As we wrote about in a report on the harm of corporate income tax cuts released yesterday, without increased demand tax cuts will just raise profits to companies and dividends to shareholders with no economic benefit. On the other hand when demand increases businesses hire regardless of their taxes. Even if tax cuts did spur the economy the mount the average company would save wouldn’t pay many salaries.
  •  Cutting taxes puts at risk public investments that do help create jobs and build a strong economy. Abandoning investments in education, transportation or public safety, all of which are building blocks of a strong economy over the long haul, to pay for a tax cut that won’t create jobs puts North Carolina’s economic future in jeopardy. Businesses need a well-educated, highly productive workforce, access to markets and suppliers, a sound transportation system, and high quality of life for employees. That’s what North Carolina has offered over the years, which is why numerous surveys, studies and rankings show this to be a “business friendly” state.

Those who claim cutting taxes will spur job creation and economic growth ignore the reality that the opposite is likely to happen, in the short run and far into the future. No marketing campaign can mask the facts.  What’s underway in North Carolina is a great tax shift – not tax reform. That’s a direction North Carolina can’t afford to go.

Post Secondary Education Increasingly Out of Reach

April 16, 2013 at 4:51 pmCategory:NC Budget and Tax Center

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One of the untold stories of Governor McCrory’s budgetBTC_NeedBased Aid 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.

First Filing of Tax Reform Legislation

March 22, 2013 at 12:54 pmCategory:NC Budget and Tax Center

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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.

Statement on Governor McCrory’s Budget

March 20, 2013 at 12:58 pmCategory:NC Budget and Tax Center

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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…

New Report on NC Higher Education Cuts in Context

March 19, 2013 at 12:45 pmCategory:NC Budget and Tax Center

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Ahead of the release of the Governor’s budget tomorrow, new analysis by the Center on Budget and Policy Priorities puts North Carolina’s cuts to higher education in the context of nationwide trends.  The result of state budget cuts to public universities in North Carolina and across the country has been higher costs for students and families.

North Carolina increased public university tuition by 31 percent according to this analysis.  Research shows that these tuition increases will impact low-income students’ enrollment and completion.

This will only make worse the already significant enrollment and completion gap that exists by socio-economic status greater.  Already among high qualified students, high-income students are twice as likely to enroll in 4-year universities than low-income students.

As the author’s of the study write:

This research suggests that states should strive to expand college access and increase college graduation rates to help build a strong middle class and develop the skilled workforce needed to compete in today’s global economy. It suggests further that the severe higher education funding cuts that states have made since the start of the recession will make it harder to achieve those goals.

Let’s hope we see the Governor move to reinvest in higher education tomorrow.