NC Budget and Tax Center

Despite the clear need to make investments that will put North Carolina on sounder economic footing, the Senate is proposing another round of tax cuts that will hinder the state’s progress, including more income tax cuts and tax breaks for certain businesses. This is a strategy that has failed in many other states.

Now is a critical moment in the economic recovery, and we must leverage this moment to reposition the state’s economy to work for everyone. But this requires that lawmakers raise enough revenues to ensure a quality education for every child, support an efficient and impartial judicial system and provide for the health and safety of all North Carolinians.

If the Senate continues to pursue tax cuts above reinvestment, it will compromise our quality of life and competitiveness now and in the future.

NC Budget and Tax Center

Last week, Stephen Moore, an associate of Arthur Laffer and national consultant, penned an opinion piece in the Wall Street Journal making a claim totally unsupported by facts – that tax cuts are improving North Carolina’s economy.

Tax cuts that primarily benefit the wealthiest people and large, profitable corporations, coupled with the drastic reduction in the effectiveness of unemployment insurance to help those struggling to get by have not ushered in a stronger economy. Instead, North Carolina continues to experience a slow, uneven economic recovery buoyed only by national trends as the state backs away from the kinds of investments that are crucial to growth.

There is no link between the tax cuts and the revenue increase the state is experiencing this year. Instead, pundits like Stephen Moore and others in North Carolina, take simultaneously occurring conditions and claim a connection that doesn’t exist.  This would be like someone looking at the relationship between per capita cheese consumption and civil engineer doctorate awards and declaring that everyone should eat more cheese so we can produce more civil engineers.

What’s really happening is that state revenue is coming in above expectations because of the realization of capital gains and business income growth. It’s the same thing being seen in states that haven’t cut taxes (and one—California—that has actually raised taxes).BTC Job Growth from Recession Watch

Higher job growth rates and productivity are welcome signs in North Carolina. But it’s important to keep in mind our state’s economic performance is still below historic levels.  Take the change in employment, North Carolina’s job growth since the start of the last recession is well below where it should be relative to other similar time periods and that means we continue to struggle to repair the damage of the Great Recession.

Rather than helping the state’s economy, it’s becoming even clearer that the tax cuts hamper our ability to address the real challenges in our economy. For one thing, all income growth since the start of the recovery has gone to the top 1 percent of North Carolinians – those making more than $1 million a year. Average North Carolinians have seen their wages fall despite the official recovery. The jobs being created since the recovery are overwhelmingly work that pays too little to support a family and build a future. And, two thirds of the state’s counties have fewer people employed than before the Recession started.

Contrary to Stephen Moore’s hopes, there is no payoff from tax cuts in North Carolina. Instead, the state will struggle to rebuild and too many North Carolinians will struggle to get by because policymakers failed to realize that tax cuts are not an economic development strategy worthy of our state’s people and history.

NC Budget and Tax Center

This post is authored by Chris Hoene, Executive Director of the California Budget  & Policy Center. 

In November 2012, California voters approved Proposition 30, a constitutional amendment that increases personal income tax rates on very-high-income Californians through 2018 and raises the state’s sales tax rate by one-quarter cent through 2016. Governor Jerry Brown championed and campaigned for Proposition 30 after state policymakers’ made widespread and deep cuts to various state programs and services during and after the Great Recession. Confronted with ongoing state budget shortfalls, and the threat of additional cuts to education and other vital services, the Governor, other state leaders, and a broad coalition — encompassing educators, labor, health care providers, faith organizations, community groups, businesses, and others — backed Proposition 30’s temporary tax increases as a means to stabilizing the budget and ensuring adequate revenues to support public investments that would position the state for economic growth.

What has Proposition 30 meant for California? Since its passage, the state’s General Fund revenues have grown from $93 billion in 2012-13 to a projected $115 billion for 2015-16. This has been driven by a combination of economic growth and Proposition 30’s tax increases, but Proposition 30 alone raises approximately $8 billion for 2014-15 (the current fiscal year) and that figure is expected to be even higher in 2015-16. These new revenues have allowed the state to significantly reinvest in K-12 schools and community colleges. In 2011-12, the low point for state budget after the recession, the state’s commitment to schools and community colleges totaled $47.2 billion. For 2015-16, this commitment is projected to be $68.4 billion. Looking just at K-12 schools, the growth in state spending since 2011-12 amounts to an increase of more than $2,000 per student. California also has slowly begun to reinvest in its state university systems (the California State University and University of California), has created and invested in a new and stronger rainy day fund, and is paying down budgetary debts. Currently, the state is poised to enact its first-ever Earned Income Tax Credit (EITC) in 2015-16, a refundable tax credit targeted to the state’s lowest-income households. Read More

NC Budget and Tax Center

This guest post was contributed by Nan Madden, director of the Minnesota Budget Project in St. Paul, Minnesota.

Minnesota is basking in some attention in news outlets across the nation highlighting its strong economy, low unemployment numbers and a median wage sitting above the national average.

That’s not the scenario painted two years ago by opponents of Minnesota’s tax reform bill. At the time, opponents predicted economic catastrophe. Instead, Minnesota is thriving.

In the last two years, Minnesota has made smart changes to its tax system that positions the state well for long-term economic growth. The 2013 tax reform plan came after years of budget deficits and deep cuts to public services, and it allowed the state to make investments that lay a strong foundation for prosperity, including increased funding for early childhood education, schools and more affordable higher education. These investments will pay off in the long run by producing the highly-educated workforce that has been one of the keystones to Minnesota’s economic success.

These changes also modernized the state’s tax system so that it generates adequate revenue for a thriving state in a 21st century economy, and made the distribution of taxes across income groups more even.

A vital component of the 2013 tax reform was the creation of a new income tax rate on the 2 percent of Minnesotans with the highest incomes. The package also raised revenues by ending several corporate tax preferences and increasing tobacco taxes. The 2013 tax reforms – as well as actions in 2014 – took additional steps to make Minnesota’s tax system less regressive. Lawmakers expanded Minnesota’s state Earned Income Tax Credit and increased property tax refunds for renters and homeowners.

And a study released earlier this year from the Minnesota Department of Revenue shows those efforts have moved us in the right direction. Overall, the tax changes made the past two years raised taxes on the highest-income Minnesotans closer to the state average, and lowered taxes for all other income groups. While our tax system is still regressive, meaning the percentage of income paid in taxes goes down as incomes rise, it will be significantly less so in 2017 than 2012. The highest-income Minnesotans still pay the smallest share of their incomes in total state and local taxes, but the gap between them and other Minnesotans has closed considerably.

After more than a decade of frequent budget deficits, Minnesota now is fortunate to have a $1.9 billion surplus for the upcoming two-year budget cycle. The surplus doesn’t mean the state should reverse course. As Minnesota’s legislative session enters its final weeks, we’re urging policymakers to continue on the path of making our tax system more fair and not offer large, unsustainable tax cuts to a privileged few.

While Minnesota’s economic success is making headlines today, the tax reforms taken over the last two years have set the stage for economic progress for years to come.

2015 Fiscal Year State Budget, NC Budget and Tax Center, Raising the Bar 2015

This post is part of a series on the budget featuring the voices of North Carolina experts on what our state needs to progress.  Elizabeth Grace Brown is a student at UNC Chapel Hill and is the author of this piece.

I’ve spent my entire educational life in North Carolina public schools, from kindergarten to today. My schools have always been excellent. I had good classroom sizes, dedicated and attentive teachers, and curricula rich in science, arts and literature. My schools strove to maintain a balance between supporting and challenging me. The guidance I received from teachers and faculty (and from my mother, who’s also a public school teacher in NC) led me to UNC Chapel Hill. But as I grew older and closer to graduation, I could already see that quality eroding. My elementary school’s magnet status was threatened, my high school had no books for us, teachers quit and students dropped out at alarming rates. I have benefited greatly from excellent public education, and budget cuts have put that education in jeopardy.

And I spent my primary education believing that if I worked hard enough, I could graduate and get an affordable, world-class college education in my home state, too. That promise, if it was ever true, certainly seems less and less within my reach every day. Every time tuition is raised, by the Board of Governors at the urging of the legislature, I go more into debt. Policy makers seem like their concerns about student debt revolve around parents and families paying tuition, but that’s not the case – my loans are on me. Asking your parents for help paying for college is a luxury that’s already out of reach for so many North Carolina students.

And I refuse to believe any longer that the increasing cost and declining quality of education in this state is something that these policy makers can’t help. Funding isn’t a just a question of allocating resources efficiently, it’s a question of values. And it’s clear that NC leadership doesn’t value education — not as much as they value tax cuts for the wealthy, or corporate subsidies. The most recent funding increases barely scratch the surface of the damage that’s been done under the guise of fiscal responsibility. Among this state’s politicians and leaders, talk of supporting education is plentiful – but talk is cheap.

And the lip service they pay to the value of education is selective, too. They love fields that will bring more profit to the already wealthy: finance, business and STEM, but not one of the forty-six degree programs that the Board of Governors just decided to cut. They don’t care for us to become critical thinkers, to know our own histories and the histories of our marginalized communities, to grow as people.

Steven Long of the Board of Governors made it clear when he said, regarding these program cuts: “We’re capitalists, and we have to look at what the demand is, and we have to respond to the demand.” They treat our education like it’s a commodity —  but they still expect us to pay more for less! As an Economics major, as a student, as an organizer and as a North Carolinian, I can tell you plainly — this doesn’t make sense, and this can’t last.