NC Budget and Tax Center

Yesterday, I joined with the folks at the Institute of Emerging Issues, John W. Pope Center for Higher Education and Michael Walden, economist with NC State University to discuss the opportunities and challenges that are emerging as automation and technological advances change work in our world and our state.

There’s much uncertainty about the future of work, but one thing is clear: the economy is changing and we must adapt our institutions, policies and approaches to ensure that the future economy can work for all North Carolinians.

It is an issue that people outside of the policy world are increasingly worried about. Increased productivity has not translated in strong wage growth over the most recent period and in fact many North Carolinians continue to experience falling wages despite economic growth. This has meant more people struggling to make ends meet or leaving the labor force.

The employer-employee relationship is becoming contingent–less full-time, consistent relationships with one employer–and with it jobs are not fulfilling traditional standards set for good, quality jobs. This means people working more hours, with less stability, and requiring income supports to cover the gap between their falling wages and rising costs for the basics so that the economy is sustained.

The discussion yesterday identified these challenges. We also touched on the imperative that our solutions focus today on equity so that where people live and who they are does not determine how they will fare in this emerging state of work. As we have written about in the past, without addressing the barriers that communities face to connecting to opportunity and the benefits of economic growth and ensuring that all children regardless of race or ethnicity have access to the tools and quality institutions that can support their lifelong economic success, the state will underperform now.  North Carolina will also be ill-prepared to compete in the future where our workforce will be more diverse and our communities will need to be resilient and connected.

The discussion also highlighted some promising solutions. Read More

NC Budget and Tax Center

Amidst a flurry of legislation during this session’s waning hours, one provision added to HB 318 last week that would restrict how local communities deal with immigration will be heard in the House. As is so often the case with last minute bills, the real costs of this measure are not well understood, and they could be major.

The provision in question (on pages 5 and 6 of the bill) would invalidate local identification or policies that support local law enforcement efforts to achieve their goals for public safety and community building. This provision seems designed only to prevent local communities from implementing common-sense measures that protect public safety, and it could have negative consequences for local economies and local budgets.

Local public safety officials in Greensboro joined community leaders yesterday to caution state policymakers against moving ahead with this legislation.  They cited in particular the challenges it will have in helping immigrants report crimes and the likelihood that it will increase arrests as police will be unable to identify community members. A Burlington police officer shared: “If they limit the type of ID that we can accept, you’re gonna have a whole lot more people that are arrested and booked into jails tying up valuable law enforcement resources.” Read More

NC Budget and Tax Center

Identification is a necessity in modern life. From accessing utility services to checking a book out of the library, having an ID card can support participation in the day to day life of a community. For many, ID cards are difficult to secure and as a result their full participation in civic and economic life is limited.

Another late change to House Bill 318 would likely limit the ability of local governments to build trust with immigrant communities and pursue identification policies.

This is counter to emerging practice across the country, including in some North Carolina cities, where providing a municipal identification card to ensure residents can access basic public services, support a sense of membership in the community and facilitate identification for public safety and economic activities. Since 2007, six municipalities have developed ID card programs. New Haven (CT) was the first to do so in June 2007, followed by San Francisco (CA) in November 2007, Oakland (CA) in June 2009, Richmond (CA) in July 2011, Los Angeles (CA) in November 2012, and New York City (NY) in June 2014. Several other cities have considered or are considering ID card programs, including Minneapolis (MN), Chicago (IL), and Dayton (OH). Read More

NC Budget and Tax Center

The August labor market data released this morning show North Carolina is failing to hit key markers of a strong economic recovery.

The unemployment rate remained steady at 5.9 percent in August, 0.1 percentage points below where the state unemployment rate was one year ago. The state experienced a slower decline than the nation, with a 0.4 percentage point drop.

Importantly, the unemployment rate does not capture the people remaining outside of the labor market due to a lack of employment opportunities. The state’s unemployment rate would be higher than 10 percent if one considers these missing workers.

A deeper assessment of the labor market trends beyond the unemployment rate in the August data include: Read More

NC Budget and Tax Center

Due to the speed at which passage of the bill is moving, we’re highlighting here five important findings from our analysis of the proposed tax-cut plan.

The Budget & Tax Center will release a more detailed analysis of the tax plan in the next day, so stay tuned.

The bottom line: yet again policymakers chose to cut taxes — a strategy that doesn’t address North Carolina’s real economic challenges. By doing so they undercut the foundations of what has proven to be economy-boosting public investments. Rather than debate what is needed so every child in North Carolina receives a high quality education, for example, policymakers narrowed their choices by cutting taxes to say it’s either teachers or textbooks; smart technology in the classroom or a teacher assistant; a one-time bonus or bringing teachers closer to the national average in pay.

North Carolina can’t afford to debate what a successful state looks like at the margins. The bar should be higher. We need to build on the investments that have made our state great and follow the time-tested better pathway to a strong economy that works for everyone.

Here is why the tax plan fails to meet North Carolina’s high standards of fiscal responsibility and will fail to put the state in a competitive position against our neighbors and the nation:

  • It’s a big revenue loser. No surprise here — but the impacts of that revenue loss aren’t fully accounted for in this two-year budget. That is because policymakers designed the tax changes to kick in down the road when future policymakers will need to contend with an even greater gap between resources and public needs, like a growing number of students and the inability to move teachers to the national average in pay.

Tax Cuts Joint Budget Deal

  • The wealthiest keep getting the biggest breaks. The move to cut the top state income tax rate to 5.499 percent from 5.7 percent appears to only serve the ideological commitment to income tax cuts. By design, it doesn’t address the fact that low- and middle-income taxpayers already pay more as a share of their income in state and local taxes than the wealthiest taxpayers do. That gap will even widen a bit under this plan. Just slightly more than one-third of taxpayers with income below $20,000 get a tax cut at the same time that 99 percent of those with income greater than $423,000 do.

  • The sales tax base expansion should not be used to pay for income tax and should include a state Earned Income Tax Credit. Increasing the goods and services subject to sales tax is important to keep up with today’s economy and provide much-needed revenue.  But relying more on the sales tax while reducing the income tax is a step in the wrong direction. It threatens the balance provided by two taxes that perform differently in different economic circumstances. In the long term North Carolina’s revenue system will be more subject to erosion in economic downturns – just when public needs tend to be the greatest. Equally important is that using an expanded sales tax to pay for costly income tax cuts fails to account for the reality that the lower one’s income the higher percentage of it they pay in sales taxes. A $500 increase in the standard deduction is insufficient to address the greater tax load that low- and middle-income taxpayers will pay. Again, the wealthiest get the biggest benefit.
  • The corporate income tax rate will definitely drop to 3 percent at some point next year. Changes to the language driving the reduction mean that revenue collections don’t have to meet the low revenue threshold set, a bar that they will likely surpass given the national economic recovery, by the end of Fiscal Year 2016. Whenever they reach that threshold, the rate will be reduced resulting in an additional $350 million in lost revenue for public schools and targeted economic development efforts beginning in the second year.  Moreover, changes to the way in which corporations profits are subject to tax will also change such that multistate corporations will only pay tax based on the share of their national profits generated from sales to North Carolina consumers and no longer need to account for their property or payroll.
  • Allocating sales tax revenue to local communities under the proposed complex formula won’t make them whole. Many questions remain about how the complicated formula for sending sales tax revenue to localities will be implemented — and how much money will be involved. Is it just the revenue anticipated from expanding the sales tax? Or could revenue generated from sales tax also be in the mix if anticipated revenue collections from broadening the sales tax fall short?  Importantly too, the roughly $84.8 million identified is unlikely to sufficiently change the dynamics in rural communities where water & sewer infrastructure needs persist, main street revitalization and support to existing businesses to expand are needed and job training and pathways require regional connections. A vision and policy agenda for rural economic development cannot be achieved with a state tax code that falls short.

The proposed tax plan is not reform. It won’t help the state’s economic position. It has been proven over time that tax cuts don’t drive significant job creation or improve wages. They can’t ensure that economic activity happens in communities that are being left behind by current economic growth.

What tax cuts do is reduce the ability of the state to build a foundation for a strong economy. That is crystal clear. The harm to public schools, health, the justice system and economic development from adoption of a strategy that doesn’t work will be felt by us all.