NC Budget and Tax Center

New analysis: A third of NC taxpayers won’t benefit from proposed tax refund plan

Proposal would also undermine preparations for next recession

North Carolina Senate and House leaders are moving forward with a flawed proposal to spend the majority of the state’s revenue over collections, more than $600 million, to issue tax refund checks of $125 per taxpayer ($250 for married couples).

Such a proposal undercuts the potential to address pressing needs in communities like school construction, hurricane rebuilding, shoring up the state’s Rainy Day Fund, and one-time investments that can improve the quality of life for children and families through quality education and health care.

It also flies in the face of prudent budgeting in the face of increasing concerns that the country and North Carolina could experience a recession in the near-term. Setting aside one-time money to minimize the potential hit to state revenues from a downturn is fiscally responsible.

Sending tax refunds to individuals won’t deliver the same economic boost as building schools or fixing our water infrastructure primarily because it won’t benefit those who need it most and are most likely to spend it. By design, the proposal is limited to tax returns that had positive income tax liability in 2018. That means that many taxpayers whose income is low or who receive various tax credits won’t receive a refund check.

New analysis from the Institute of Taxation and Economic Policy finds that 32 percent of taxpayers will not receive a tax refund check despite the fact that all North Carolinians pay state and local taxes each year.

Here’s why:

Some North Carolina taxpayers earn too little to file income taxes. Yet all North Carolinians pay sales and excise taxes. Low and middle income taxpayers pay a greater share of their annual income in sales and excise tax to our collective effort to strengthen community well-being.  The current tax refund proposal doesn’t account for the total tax load carried by North Carolina taxpayers.

Many taxpayers don’t have income tax liability due to the state’s high standard deduction. Overtime, the standard deduction—the amount of income you can earn before you have to start paying taxes—has been increased by policymakers. Increases in the standard deduction means that fewer people have income tax liability thus making fewer NC taxpayers eligible for the tax refund.

New analysis from the Institute on Taxation and Economic Policy finds that North Carolina taxpayers most in need of an income boost and those most likely to spend their refund are less likely to receive one. A full 70 percent of taxpayers in the bottom 40 percent of the distribution, those whose average income is below $36,000, will not receive a tax refund. At the same time, the top 20 percent of taxpayers receive 34 percent of the tax refunds.

It is time for a more serious conversation about our fiscal decisions and a return to the process of finalizing a budget that considers the full range of needs now and in the future.

Martine Aureline contributed to this post.

NC Budget and Tax Center

Legislative leaders need to invest in longterm needs of NC, not one-time redistribution

Redistributing the tax dollars of the state’s wealthiest taxpayers (66 percent of all capital gains income in the state are held by taxpayers in the top 1 percent) to all taxpayers may sound appealing to Senator Berger, but our families, communities, and economy would be a lot better off if they invest those dollars in schools that remain underfunded, people who can’t get the health care they need, and our water that is literally poisonous.

Senator Berger’s redistribution proposal won’t permanently fix the state’s upside-down tax code, either, given the one-time nature of these dollars.

With the announcement that the state may have a larger than projected over-collection of revenue that can help to meet the backlog of unmet needs in classrooms and communities, it is time for legislative leaders to get to work on finalizing a budget that better reflects the priorities of leadership looking to move our state ahead and account for how they will spend those dollars in the next year.

Economists from both the General Assembly’s Fiscal Research Division and the Office of State Budget and Management found this spring that the $896 million more in revenue over projections was due primarily to larger than expected increases in capital gains income.  Wage and salary income performed at projected growth levels. States across the country have experienced similar unexpected increases in their revenue, largely from the same source, although also from corporate profits.  These increases are also happening in states that have not recently cut taxes and in states that recently have increased tax rates like Minnesota.

In the face of growing income inequality where the top 1 percent have incomes 20 times that of the bottom 99 percent, these additional dollars should be driven into breaking down barriers to more equitable outcomes in our state.

Instead of concocting ever more complicated schemes to constrain opportunity in our communities, Senator Berger and Speaker Moore should work with members on both sides of the aisle to put forward a budget that deploys these dollars for the public good. Read more

2019 Fiscal Year State Budget, Commentary, NC Budget and Tax Center

Legislative leaders refuse to engage with counteroffer on the table, risk community well-being statewide

Legislative leaders have failed to engage with the Governor’s counteroffer after his veto of a budget that continues to cut taxes for big companies while failing to invest in our children’s education, our workers’ opportunities for training, and our community’s infrastructure to protect our air and water.

Senator Berger and Speaker Moore seem to believe that inaction on a two-year spending plan for the state and even leaving town without a budget is perfectly acceptable since the state can operate under a provision in state statute that Republican leaders established a few years ago that sets out the spending rules when no agreement be reached between the legislative and executive branches.

And yet North Carolinians and communities across the state know that there is nothing acceptable about their inaction in the face of the responsibility they have been given to steward our tax dollars and support our collective well-being.

The failure to follow a budget process that seeks to negotiate priorities in the face of mounting community needs is a dangerous practice to engage in.  As has been evidenced with the use of federal shutdowns, the breakdown of the budget making process allows for problematic decision-making that is often ad-hoc, is beholden to special interests and a small segment of the legislative body, and ignores the responsibility of elected leadership to come to agreement on where to invest taxpayer dollars.

As the days and weeks drag on without engagement with the Governor’s counteroffer, legislative leaders will be forced to confront increasingly challenging budget issues. Stop-gap spending bills that have made their way through the Senate and House respectively can’t possibly address these challenges in a comprehensive and thoughtful way.

There will be no ignoring the need for a state budget as state employees receive their first paychecks without step increases, federal funds languish without the ability to deploy them, schools go back in session and there are more children than there are resources, and their policy choices like Raise the Age or Medicaid transformation require funding for implementation.  Read more

Commentary, NC Budget and Tax Center

The budget proposal that Cooper vetoed fell short in numerous important ways

Gov. Cooper announcing his budget veto on June 28

To truly reflect what we value as a country and a state, our budget process and final product has to both consider and make greater effort to meet the pressing needs in our communities. There should be an open process, a consideration of all sides of the debate, and movement toward compromise.

The reality is that the final budget, vetoed by the Gov. Roy Cooper on June 28, was never a compromise for legislative leaders. It would have been a compromise for us all and of our future.

It includes another round of tax cuts for big companies and an expansion of tax breaks that haven’t yet been evaluated for their impact. Tax breaks for NASCAR and jet owners were extended even as tax credits for working families were blocked from a full hearing.

It includes a series of special projects for various communities — providing narrow services or, in some cases, genuine “pork” rather than building systems to sustain a higher quality of life across the state.

But just as important as what it includes is what it didn’t.

It didn’t include a plan to expand Medicaid for those living in the coverage gap.

It didn’t include a plan to drive expanded federal dollars for child care assistance and maintain the state’s commitment to early childhood overall.

It didn’t include a plan to fully address the new toxins found in water and soil in communities across the state.

It didn’t include a plan to provide job training to those who are seeking work but whose prior occupations are no longer around.

It didn’t include a plan to fully fund the Raise the Age legislation that will go into effect at the end of December.

The final budget put together this year is not exceptional. It is another unexceptional effort on the part of legislative leaders to keep moving in the same direction with the same approach. The outcomes aren’t likely to be different.

Tax cuts won’t get people the health care they need. Tax cuts won’t put textbooks in classrooms. Tax cuts don’t build new schools.

Legislative leaders must go back to the drawing board if only to jolt them out of the complacency with which they lead — a complacency that has led them to turn their backs on at least 500,000 neighbors without health care coverage when a fiscally responsible solution is available to them.

To begin again could give us all the opportunity to remember that the budget is ultimately about our collective values. It is about our whether and how we care for the well-being of each and every North Carolinian and not just the wealthy few.

Alexandra Forter Sirota is director of the Budget & Tax Center for N.C. Policy Watch.

NC Budget and Tax Center

Bill to require locals to enforce federal immigration law will cost taxpayers millions

Last night, the North Carolina Senate passed its version of House Bill 370, which would force North Carolina sheriffs to act as an extension of U.S. Immigration and Customs Enforcement (ICE).

Beyond the harmful costs to communities of increased fear, decreased willingness to engage with law enforcement, and family separation, there are costs to local governments of enforcing federal immigration laws. These costs come primarily in the form of holding individuals in jails while awaiting transfer to ICE custody, but also include the potential cost of litigation from unlawful detention.

Using methods from other states and informed by national researchers, our analysis of the costs to North Carolina of enforcing collaboration with ICE finds a conservative annual cost of $7 million to local governments across the state using updated data available from 2018 ICE detainers issued in our state. When a detainer is placed on an individual, the detainer extends the length of stay in jail for up to 48 hours. These costs are associated with the fact that many individuals are held when they otherwise would have been fined, ticketed, or released pending a trial date. Researchers estimate that the average stay in detention when ICE issues a detainer request is 22 days. North Carolina data from the federal government suggests that individuals with ICE detainers are often held much longer – an averaging of 69 days. The $7 million price tag is based on the more conservative 22-day estimate of detention when ICE issues a detainer.

This calculation is also based on last year’s number of people held on an ICE detainer in North Carolina, which remained below prior peak levels. If the requirement to enforce federal immigration law resulted in increased ICE detainers being issued, reaching similar levels to the 2011 peak, the costs could rise to $14.5 million annually. Read more