NC Budget and Tax Center, Trump Administration

Three reasons to be concerned about President Trump’s announcement about the federal budget

Today, President Trump announced directions to federal agencies that suggest his plan for the federal budget will be deep cuts to non-defense discretionary spending to pay for significant increases in the country’s defense budget.

President Trump suggested that he would seek a 10 percent increase in defense spending and find cuts to meet the estimated $54 billion required to do so in programs that protect the health and well-being of Americans, provide quality and affordable education and job training and support the infrastructure of a global economy.

Here are just three reasons to be concerned about this preliminary direction for the federal budget process:

  1. Areas of the budget that will likely be cut to pay for increases in defense spending are portions that help Americans access economic opportunities and support institutions that are vital to a healthy economy and democracy. Many of the poverty reduction programs likely to be hit hard play a critical role in the economic security of working-age adults who lack a bachelor’s degree and help strengthen the broader economy.
  2. The 2011 Budget Control Act put in place spending caps on defense and domestic programs, some of which will come into direct conflict with President Trump’s proposal. Changes to this act have the potential to shift costs elsewhere, increasing cuts in certain budget areas or growing the long-term budget deficit. As has been evidenced by sequestration, or automatic budget cuts to date, access to child care, housing and other programs supported with federal dollars ripples through local communities in ways that limit improvements in developmental and economic outcomes of children and their families.
  3. President Trump’s budget announcement today doesn’t detail the various ways in which competing proposals, like plans for infrastructure development, campaign promises to protect entitlements and efforts to cut taxes for the wealthy, will be reconciled in a final budget.
NC Budget and Tax Center

Kansas’ Republican-controlled legislature votes to raise revenue, responsibly address Brownback’s failed tax cut experiment

Here is a little hope on Saturday morning for North Carolina as we enter a budget debate that should have learned the lessons of failed tax cut experiments by now.

Yesterday, the Kansas legislature voted to raise revenue to address another year of budget shortfalls.  Since the failed tax experiment began in 2012, Kansas has seen significant cuts to public schools, health services and community corrections programs to name just a few of the areas hit hard by the lack of revenue.

After two years of addressing the budget shortfalls through more spending cuts and tax increases that hit low-income taxpayers hard,  Kansas leaders finally pursued a more permanent solution to their failure to responsibly budget for the state.

Here is more context from the Washington Post/ AP article:

Kansas’ Republican-led Legislature voted Friday to roll back a deep tax cut championed by Republican Gov. Sam Brownback, conceding it helped put the state in dire financial straits and setting up a possible showdown with him…

The state faces projected budget shortfalls totaling nearly $1.1 billion through June 2019. Even with a big tax increase, lawmakers still would have to approve some stop-gap measures such as internal government borrowing to pay bills through June, until new revenue started flowing in.

Brownback and his allies continue to argue that the personal income tax cuts he championed in 2012 and 2013 are creating economic growth and the state’s problems were largely caused by slumps in agriculture and oil production. Voters rendered a different verdict last year, ousting two-dozen Brownback allies from the Legislature and giving Democrats and GOP moderates more power.

 

NC Budget and Tax Center

Grover Norquist trying to sell more bad ideas to North Carolina lawmakers

Right-wing anti-government crusader Grover Norquist issued a template opinion piece the other day to North Carolina leaders and voters in support of the tax cut that will be delivered to the wealthiest taxpayers when the Affordable Care Act is repealed.

Norquist was a key proponent of our state’s tax cuts in 2013, arriving on the scene from D.C. to push our local legislators to adopt a proposal that has made it difficult to respond to the needs in our communities and to develop an economic development strategy that recognizes the uniqueness of our state.

The data is quite clear on what the repeal of the Affordable Care Act will mean: a significant tax cut for the country’s wealthiest taxpayers and growth in the country’s budget deficits.

The tax components of the Affordable Care Act have made health care affordable to more Americans and North Carolinians and, in so doing, addressed many health care issues. Its effectiveness has led many conservative leaders to embrace the law to serve their citizens and in turn achieve a fiscally responsible approach to supporting healthier communities.

NC Budget and Tax Center

NC’s revenue challenge persists despite latest revenue forecast

The ongoing economic recovery has bypassed many North Carolinians and communities across the state. This isn’t surprising news, but it is the reality that we should keep in mind when thinking about how to use $552.5 million in public revenues that are expected to be collected above state’s official’s initial projection.

This revenue forecast is certainly good news for North Carolina, particularly given how much revenue is needed to ensure that all communities thrive and that economic prosperity is broadly shared. Unfortunately, even with the anticipated over-collection, we still don’t have adequate resources to address all of the state’s economic needs.

North Carolina faced a similar reality in recent years amid a modest, yet steady economic recovery. For the 2015 fiscal year, revenue collections were $400 million above original projections. This positive news on the revenue front didn’t erase the tradeoffs lawmakers faced regarding state budget decisions last year, however. Sufficient revenue was simply not available to address the various stated priorities among lawmakers. Meaningful pay raises for teachers and state employees, reducing class size for K-12 classrooms, investing in economic development initiatives, boosting funding for early learning opportunities, among others, were all worthy public investments. However, there just wasn’t enough available revenue for all of these priorities.

Lawmakers will face the same conundrum this year. Choices will have to be made regarding providing additional relief funding to communities devastated by Hurricane Matthews, boosting teacher pay, expanding early learning opportunities, infrastructure investments, and access to an affordable higher education, among other public investments.

The hope now is that state lawmakers patch as many holes as they can with $550 million in additional revenue, and think about how to address the many pressing needs that will still be left unaddressed.

NC Budget and Tax Center

The fiscal fallout from flawed executive orders on immigration

Public outcry and legal challenges to President Trump’s Executive Orders on immigration were immediate.  The costs to our country and economy will mount in the coming weeks, months, and could play out over generations if these Executive Orders stand.

They will be felt not just in the immigrant community but among the broader public through various mechanisms.  Here are just FOUR ways in which the Executive Orders on immigration will cost our country and undermine efforts to strengthen our economy.

1. Detention, litigation and deportation costs are likely to rise. The executive orders adopt a policy of removing prioritization in the detention and deportation of undocumented immigrants which has the likely effect of increasing the number of people detained and deported across the country.  At the same time, this policy shifts the responsibilities and cost for policing and detaining immigrants from the federal government to local law enforcement. It is unclear whether the time in detention could also increase as well given that the number of immigration judges will remain constant and thus likely be overloaded with cases as the number of immigrants in the system is increased.

The average cost of detention per day in North Carolina is approximately $90Current detention numbers in North Carolina mean that we are already spending an estimated $1.2 million a year.  The potential increase in detentions could grow that state and local cost figure to a conservative cost of $63 million for holding immigrants detained           in North Carolina.

The costs of deportation are estimated to be on average $10,000 per person.  Estimates of the cost of deporting all undocumented immigrants in the United States are $4.7 trillion over 10 years.  Already, federal spending on interior enforcement has grown by 85 percent since the inception of the US Immigration and Customs Enforcement             agency to $6.1 billion.

2. Building a wall is a cost that will have to be paid for somehow. Thus far, there is no serious and viable plan that would keep Americans from paying to build the wall.

The estimated costs of building the wall is estimated between $15 and $25 billion. The maintenance of the wall has been estimated to be $750 million annually.  The cost of building the wall is equivalent to a third of the country’s investment in medical care for veterans; would cover the entire federal investment to provide high-quality             education for all students and work to close the achievement gap; and could provide affordable housing to 2.2 million Americans. Instead of investing in a wall, with that money the federal government could hire 40,000 teachers for ten years or build 230,000 new homes and cut the number of individuals experiencing homelessness in the country by almost half.

3. Restricting labor flows will impact industry and usher in a new post-free-trade paradigm. As countries retaliate for closing the flow of labor across borders, there will be challenges for investors who seek to place their capital in business operations and investments abroad, barriers to the research and development that has seeded new technologies and ventures here in the U.S. and difficulties for industries that seek a labor force with specialized skills and experience. A whole host of cascading effects on the cost of doing business could also ensue as inputs into our supply chains and markets for our products are reduced driving the cost up of what is available.

The restriction on the mobility of labor will likely make worse the already significant economic loss from failing to realize the skills of immigrants in our labor markets which the Migration Policy Institute estimates in earnings alone is $39.4 billion annually. In the extreme, North Carolina industries under mass deportation would experience a $10.6 billion net loss in productivity.

The literature on the economic harm of restricting immigration flows has reached overall consensus: the benefits of immigrants to the size of the labor force, earnings levels of all workers in the long-term and consumption in the broader economy is positive.

4. Our labor markets and social security systems, to name just two, depend on immigrants to remain vibrant and solvent. The United States is on the pathway to a major demographic shift with the aging of our population.  Immigrants to North Carolina are likely to be younger and also have a higher labor force participation rate playing a critical role in our communities as workers, entrepreneurs, taxpayers and consumers. Estimates suggest that the United States will need to add 25 million workers by 2030 to maintain economic growth and immigrants are important to achieving that target.

Despite the rhetoric, it is important to note that undocumented immigrants also pay taxes including social security taxes even though they cannot access those benefits. This means that their payments are in part keeping the Social Security system solvent right now.

Undocumented immigrants in North Carolina also pay approximately $278 million in state and local taxes. In the United States, undocumented immigrants pay approximately $11.64 billion in state and local taxes contributing to the infrastructure in communities across the country supported by state and local government services.

There are many reasons to oppose the recent Executive Actions on immigration but its costs and drain on our economy should be prominent among the problems listed with these ill-crafted orders.

This piece was contributed to by Victoria Crouse.