NC Budget and Tax Center

The House budget continues to ask less from the state’s wealthiest taxpayers and profitable corporations and more from everyday North Carolinians while underinvesting in the foundations of a strong economy.

By failing to pause the corporate income tax cuts and also prioritizing further tax breaks to big business, policymakers are missing the opportunity to build opportunity and ensure that where you are born does not determine your ability to do well as an adult. Investments in early childhood, education, job training, health care, and public safety ensure that North Carolina’s communities thrive.

While the House budget reflects some of these investments, there are many others—school nurses, affordable housing, professional development for teachers, community economic development—that don’t receive the funding needed to truly make an impact on people’s lives.

NC Budget and Tax Center

Policymakers are beginning to put the finishing touches on their budgets this week in the House. The Senate will soon follow.  While the April surprise has some thinking of investments in core services that are needed or, even more disturbing, proposing more tax cuts, a cautious approach is warranted.  Not only does the revenue announcement last week not signal that the state has what is needed to support strong and effective public services, it is quite possibly a one-time event.

The Washington Post today reported that a number of states  have announced revenue collections higher than anticipated largely on the personal income tax side and due to strong investment income performance.  North Carolina’s Fiscal Research Division and Office of State Budget Management identified similar sources for our own state’s revenue surplus.  From the article:

“This year’s April surprise will likely help more states meet or exceed revenue projections for fiscal 2015, which ends on June 30th for 46 states,” NASBO’s Brian Sigritz writes in the blogpost. “However, most of the gains are due to an increase in income tax collections, partly from the strong stock market performance in calendar year 2014, and are viewed as one-time occurrences.”

The fact that North Carolina appears to be mimicking national trends means that tax cuts also can’t serve as an explanation for the surplus. It also means, again, that policymakers should be very cautious in how they consider this money in their budgets.  It seems increasingly clear that a fiscally responsible approach would be not to expect the bump from current economic conditions to be a permanent feature of the new tax code and certainly not reason for more tax cuts.

NC Budget and Tax Center

We were surprised to learn today that the official estimates suggest North Carolina will have a $400 million surplus this fiscal year. This is certainly good news for our state – we won’t have to cut quite as much as we thought we would to the core public services that help our communities and families connect to economic opportunity and enjoy a high quality of life.

The revenue uptick, however, does not mean that the state has more than what we need to get families and the economy back on track. Nor is it a result of the failed economic theory that tax cuts spur economic growth and certainly it is not a sign that North Carolina is in a stronger position as a result of the tax cuts.

Here are a few things to keep in mind. Read More

NC Budget and Tax Center

The announcement today that North Carolina has paid down its unemployment insurance debt to the federal government is just a first milestone in the path to a solvent system. It is one that has been achieved through a series of harmful cuts impacting jobless workers, their families and communities and an approach that will ultimately reduce the long run potential of the system to serve as stabilizing force in the economy.  So as far as milestones go, the celebration seems premature.

Here are few things to remember about the unemployment insurance debt and the choice that policymakers made to pay employers’ debt with cuts to unemployment insurance for jobless workers.

1. Yes, historic job loss contributed to the need for the state to borrow from the federal government to ensure payments during the Great Recession, but that wasn’t the driver. It was tax cuts in the 1990s that set the system up to fail even before the recession hit.

2. North Carolina’s unemployment insurance system was pretty much middle of the pack on most measures of adequacy, reach and financing when policymakers decided to make their changes to it in 2013.  These changes have reduced average weekly benefit amounts and the number of jobless workers accessing the system.

3. The dollars from cutting benefits for jobless workers contributed the most to debt repayment according to estimates by the Upjohn Institute and Fiscal Research Division.  Nearly two-thirds comes from cuts to benefits and just 0.7 percent from state taxes.

4.  The final payments on the debt mean employers will no longer pay the automatic federal tax increases that were the primary way by which they contributed to the success of this system that benefits them.  The automatic federal tax increases went up $21 per worker each year or, for a full time employee, about a penny for every hour that worker worked. By 2013, employers were paying three cents more per hour worked per employee. Unemployment insurance taxes total represent about 0.1 percent of total business costs.

5. Unemployment insurance taxes are not a barrier to job creation or strong economic performance.  The opposite is the case: ensuring that the unemployment insurance system can serve its temporary and adequate wage replacement function means that employers are less likely to have to eliminate jobs and more able to rebound from a downturn.

Failure to make changes now to the financing of the unemployment insurance system by ensuring that employers contribute adequately and do not receive more tax cuts (as they will under current law) before the Trust Fund is truly solvent will undermine the system’s stabilizing force in the economy.  Future downturns could require more borrowing, benefit cuts or tax increases if policymakers prematurely reduce the state taxes contributed by employers. Failure to revisit the benefit cuts and the harm they have created will undermine the support of this system to the economy.

 

NC Budget and Tax Center

A new report commissioned by Think NC First and written by John Quinterno gives a new moniker to the official recovery that began in 2009: incomeless.  Add that to the “jobless” and “uneven” labels that the recovery has earned to date and the reality for us all begins to look not at all like recovery.  The report takes a thorough look at income in North Carolina and finds that the trends are “running in reverse.”  Among the findings:

  • From 2007 to 2013, the inflation-adjusted income of the median North Carolina household dropped by more than 8%. Median income fell by 5.5% from 2007 to 2009 and by another 3.2% during the recovery that started in 2009 through 2013.
  • From 2009 to 2013, real average household income fell or remained unchanged for every household income group in North Carolina except for the top 5%.
  • The distribution of household income in North Carolina has grown more unequal since 2007, and the distribution of income in North Carolina in 2013 was more unequal than in the nation as a whole.
  • The annual earnings of the median worker (ages 16+) fell by 7.4% between 2007 and 2013.
  • Real median household income in North Carolina was effectively no different in 2013 than in 1984.

As Quinterno points out, the lack of jobs and other labor market conditions have put downward pressure on wages but policy choices have made worse these wage outcomes.

Allowing inflation to erode the value of the minimum wage, refusing to enforce and to modernize labor laws, undercutting the effectiveness of the unemployment insurance system, making work more costly by repealing the state earned income tax credit, and enacting tax policies that fail to boost growth yet drain needed public revenues—these choices have tamped down wages and incomes.
Be sure to check out the full report here.