NC Budget and Tax Center, Raising the Bar 2015
Editor’s note: This is an installment in “Raising the Bar” — a new series of essays and blog posts authored by North Carolina nonprofit leaders highlighting ways in which North Carolina public investments are falling short and where and how they can be improved.

We have been highlighting the views of experts about where North Carolina needs to invest to have the maximum impact and will continue to do so throughout the budget debate. The combined potential of smart spending with adequate revenue can improve the state’s economy and ensure more people can contribute to the activities and institutions that make our state great.

There has been very little, however, to suggest that policymakers are willing to tackle the challenge of a tax system that no longer is capable of supporting the core public services that deliver opportunity. Instead, there continue to be proposals to cut the income taxes and shift limited revenue around without addressing the fundamental issue that there are too few dollars.

As we have written about at Prosperity Watch, the state’s revenue is not only coming in far below projections it is growing far below historic averages. The result is that today we don’t have the revenue needed to invest for our future. And in that future we can anticipate ongoing self-inflicted revenue challenges unless policymakers address the inadequacy of our tax code.

North Carolina is not broke. There are the resources to make a commitment together to building that foundation. It will require that the state’s wealthiest residents—who have captured the entirety of income growth since the recovery began—and profitable corporations—who continue to reach record profits—contribute according to their ability. They, like the state, stand to benefit. After all a stronger economy is possible when more Tarheels are educated, more businesses have skilled workers, more main streets have vibrant small businesses and more communities are safe and healthy places to live.

Here are some of the big picture ideas that policymakers should consider in developing a tax system that can achieve our shared goals of strengthening the state’s economy and supporting families and communities across the state.

  1. Restore an income tax rate structure that ensures that all taxpayers carry an appropriate share of the tax load. This could provide $390 million if you keep the current 5.7% rate for the majority of taxpayers and add two brackets for the wealthiest in the state.
  2. Restore a vital tax credit for low-income working families before expanding the sales tax any further.
  3. Make sure that large, profitable corporations are paying to support the services they use and benefit from. This could provide $200 million if the corporate income tax rate is set at 6 percent which is in line with the region.
  4. Eliminate special-interest tax preferences that aren’t helping the state’s economy.

North Carolina has the capacity to make sure that our investments can grow an inclusive and strong economy. Policymakers just need to recognize—as they have done in the sales tax allocation debate—that revenue serves as the mortar in the foundation to supporting a vibrant economy.

NC Budget and Tax Center

The findings keep pouring in: North Carolina won’t grow as strong or resilient an economy without taking a careful look at how it ensures everyone is included and connected to opportunity. Proven public policies and investments are needed to ensure that prosperity is broadly shared and everyone benefits from growth.

It is clear that there is a long way to go. In a recent report by my colleague Tazra Mitchell on economic hardship in the state, more than 464,000 North Carolinians would need a stronger pathway out of poverty to make the poverty rates for communities of color equal to that of whites. Analysis by the Brooking Institution recently found that proximity to jobs for people of color and poor people fell more steeply than for non-poor and white residents since 2000. In North Carolina, four of the five metro areas profiled in the report saw no improvement or a worsening of job proximity for residents of neighborhoods that were majority people of color. Not only has the distance to jobs grown, despite the recovery that began in 2009, there remain are still too few jobs for the North Carolinians who want to work and the jobs that are available increasingly pay low- or poverty-wages.

New research published in the Urban Studies journal finds that equity is a powerful force in sustaining job growth. Over more than 180 metro regions, the authors find that growth spells– measured by employment increases over three or more years–are longer if the region has lower income inequality and is more spatially integrated.

Raleigh and the Triangle region are becoming an important case study in how to pursue equitable growth. If done right here, the region could provide important insights for other areas of the state, region and country. Even as employment growth in the state has been concentrated in Raleigh’s metro area (as well as Charlotte), the region’s full potential has yet to be realized as it continues to grow at less than half of it’s pre-recession rate.

In an analysis released last week by the Triangle J Council of Governments, PolicyLink and PERE USC,it is clear that demographic shifts and economic realities require the Triangle region including Raleigh, Durham and the surrounding 13 county area to embrace equitable development strategies. Read More

NC Budget and Tax Center, Raising the Bar 2015

North Carolina can have quality schools, accessible health care, a sound transportation system, affordable housing and safe neighborhoods—all of the things necessary to strengthen the economy and grow a strong middle class. We just have to make the choice to build this infrastructure of opportunity.

In recent years, state policymakers have undercut the effectiveness of our public systems, instead enacting tax cuts that primarily benefit the wealthiest taxpayers and profitable corporations. Because of those tax cuts and a slow economic recovery, the state doesn’t have enough revenue to adequately support the systems that fuel economic growth.

That’s not how it worked in the past. Coming out of previous recessions, North Carolina quickly reversed the cuts made when times were tight and increased investments in roads, schools, and universities that paved the way for an economy that outpaced many other Southern states.

North Carolina has never looked to other states to show us the way forward. On the contrary, other states in the south have always looked to us for leadership and innovative ideas. Our state created a progressive personal income tax in 1921 that made us a leader in state funding for public education at one the time and further established our reputation as the Great Roads State. We created a community college system that was the envy of the nation. And, more recently, our innovative early childhood programs were held up as a national model.

Today, instead of making investments, policymakers are using the tax system and the state budget to bulldoze the infrastructure of opportunity.

As state leaders create the Fiscal Year 2015-2017 biennial budget, we can encourage them to make investments that are proven to grow our economy and promote financial stability for families and the state government. But we have to acknowledge that they can’t make those investments without the necessary revenue.

Over the next few weeks, experts on a range of issues that support stronger communities, families and economies in North Carolina will share their perspectives here. They will speak not just on where state investments have been and what has been lost in recent years, but they will also share proposed solutions for what North Carolina’s leaders could do to achieve the better outcomes we all seek.

We hope that our leaders will consider how we raise the bar in the budget debate not how we race our neighbors to the bottom.

Editor’s note: This is an installment in “Raising the Bar” — a new series of essays and blog posts authored by North Carolina nonprofit leaders highlighting ways in which North Carolina public investments are falling short and where and how they can be improved.

 

NC Budget and Tax Center

For Throwback Thursday, the Senate is relishing in old school ideas.

Case in point, a bill was filed today to further cut income taxes for profitable corporations and continue to reduce the flat income tax rate that benefited the wealthiest taxpayers the first time around. It is an eerily similar approach as the legislation passed in 2013, which is now hurting our state and economy.

Income tax cuts like the one proposed in today’s throwback are not the answer to the state’s economic challenges. Just ask Senator Brown who is working to secure additional sales tax revenue for rural counties that have been hit hard by the 2013 tax changes which ultimately reduced state investments in public schools and economic development. Take a look at the academic research which finds no consensus on tax cuts benefiting the economy through job creation or increased incomes. Or consider the experiences of states’ like Kansas where income tax cuts have not delivered a boost in jobs or wages but have resulted in cuts to core services.

The continued pursuit of income tax cuts will not boost North Carolina’s economy, it only serves to further reduce revenue that pays for services that people rely on each day, like our schools.  Preliminary estimates suggest the cost of this bill would be $1 billion, on top of the nearly $1 billion price tag of the tax changes passed in 2013.

One major beneficiary of these tax cuts will be profitable corporations.  Read More

NC Budget and Tax Center

After several states including North Carolina challenged the extension of Deferred Action for Childhood Arrivals and the Deferred Action for Parents of Americans a preliminary injunction was issued holding up implementation of these immigration directives with the potential to reach 5 million immigrants without documents nationwide. While the issue is considered in the courts, the delay has real human, fiscal and economic costs.

As the Center for American Progress notes in their analysis:

The Council of Economic Advisers, or CEA, estimates that the November executive action providing deferred action to low-priority individuals will increase the national gross domestic product, or GDP, by nearly $60 billion over the next decade. In the aggregate, CEA estimates that the immigration directives will increase the GDP by $210 billion. As CAP demonstrated in a recent report, payroll tax revenues will increase $22.6 billion in five years and the solvency of the Social Security system will increase by $41 billion over 10 years as workers earn higher wages…State and local economies also stand to benefit immensely from the executive action.

Indeed, there are clear benefits to state and local economies to ensuring that these low-level undocumented immigrants can work and care for their families free from fear of deportation. As we have written about in the past, North Carolina is poised to benefit economically from these policies both through increased labor force participation and tax revenue. Not only are there estimated to be increases in state tax revenue but their participation in local economies as consumers is also important. That is in part why thirty-three mayors have filed an amici brief to urge the courts to lift the injunction: leaders of cities know that immigrants make an important contribution to their vibrancy. Read More