NC Budget and Tax Center

This Pi Day, why the pie is shrinking and what it means for North Carolinians

As people celebrate Pi Day (3/14) today around the world, the Budget & Tax Center is revisiting some of our most telling pie charts for North Carolina from the past year.

These graphs show us that, like pi, there are some things in North Carolina that are constant: that we need a collective commitment to well-being for everyone in the state, and that it hurts us all when we prioritize tax cuts for the wealthy few and don’t invest enough in our public institutions.

Income, as evidenced by the latest data, is increasingly concentrated at the top.  More than 51 percent of all income in the state in 2018 went to the top 20 percent, and 23 percent went to the top 5 percent.

 

North Carolina’s collection of revenue — that provides things that everyone needs like health care and education — relies less on income tax from personal and corporate sources. This contributes to both our upside-down tax code and, over time, our tax code’s inability to keep up with the needs in our communities.  This is in part because, as noted above, income is growing at the top. Read more

Commentary, NC Budget and Tax Center, Trump Administration

Does it take a pandemic to make us realize we are in this together?

The worldwide concern over the coronavirus has reached the United States and North Carolina. With it should come a consideration of the policy choices that can make sure that we contain the potential spread of the illness, as well as build systems that would serve us well under other public health threats such as flu season and promote the well-being of every person in our state.

The media coverage around the novel coronavirus has included two key policy areas: the need for universal health care coverage that is affordable and connects people and communities to the care they need, and the protections and supports that allow people to take time off from work without fear of job loss in order to care for themselves and their families.

Cuts to our public health infrastructure at the state level in recent years have undermined our readiness for the public health challenges that come with the coronavirus, such as the need for new testing, public information, and institutional planning.

Even as the country is experiencing a bad flu season and this new threat, the federal administration proposed cuts to the Centers for Disease Control of 9% overall (7% for global health programs) compared to the most recently enacted budget. These cuts, on top of decades of funding decisions that have largely held flat the investment in this critical infrastructure, have created barriers to anticipating outbreaks, deploying information, and testing and containing the spread.

In North Carolina, funding for the state’s public health division has fallen by 28% between Fiscal Year 2008-09 and FY 2018-2019, the last enacted budget.

As we have learned in so many areas of the state budget, cuts to our collective commitment have two effects. First, they reduce the availability of programs and services. Second, less discussed but equally important, is the way in which cuts to public investments over time erode the ability of the system to serve their functions effectively and efficiently.

There is a cost to prioritizing tax cuts over the well-being of North Carolinians. That cost is felt more acutely in times of emergencies and outbreaks, but make no mistake, their slow damage to the infrastructure in our communities that holds us together is ever present.

Commentary, NC Budget and Tax Center

Report: Children, teachers, parents benefit from early childcare and education system

N.C.’s youngest children would benefit from a high-quality early child-care and education system. So would everyone in our communities.

New research estimates that a “values-based” early child and education (ECE) system would benefit North Carolina’s children, teachers, and parents. A comprehensive publicly financed system that compensates educators fairly could serve between 368,000 and 485,000 children and would employ between 152,000 and 205,000 ECE teachers at fair wages once fully implemented. 

The report comes as the state must grapple with the growing evidence  reinforced in December by the court-ordered report from West Ed on the state’s failure to provide the constitutionally required sound, basic education — that North Carolina needs to consider all the ways in which children must be supported to thrive.  We must also consider the reality that as a state we are not supporting the education and brain development of our youngest children with a high-quality early child care and education system to help them thrive. 

The report, from Economic Policy Institute (EPI) and the University of California, Berkeley’s Center for the Study of Child Care Employment (CSCCE), explains that many proposals for ECE reform have focused primarily on improving access and affordability for families, but have ignored the elephant in the room: ECE is substantially “funded” through low teacher pay and inadequate supports for ECE teachers, who are primarily women  specifically, women of color.  It considers a bold proposition — leveraging public financing to reach more kids with quality care. 

The authors find that ECE teachers in North Carolina with a bachelor’s degree are paid 28.8% less than their colleagues in the K-8 system. And the poverty rate for early educators is 17.6%, much higher than North Carolina workers in general (10.6%) and more than 7.4 times as high as other teachers. 

Policymakers and other stakeholders in North Carolina have an opportunity to disrupt this problematic status quo and ensure that North Carolina’s system has the funding it needs to work effectively for children, families, and teachers.   

The federal government already provides North Carolina about $650 million annually, and parents pay $1.1 billion.  Moreover, with recent agreement reached in Congress to expand the Child Care and Development Block grant, North Carolina policymakers could have the opportunity once again to make transformational investments for our youngest children — and revisit the missed opportunity of the last economic expansion.   

The latest research released from the nonpartisan Economic Policy Institute estimates that once this values-based system is fully implemented, there would be an annual cost for a high-quality and comprehensive ECE system in North Carolina ranging from $9.1 billion to $12.4 billion, or $25,000 to $27,000 per child.  These figures are not far from the investments per child we see in high quality K-12 systems   

 North Carolina would benefit tremendously by making a serious investment in early care and education. The reality that our state leaders can no longer ignore is that we need a stronger public commitment to the early childhood system in order to ensure every child is supported to their full potential.  We must invest early and now in a solid pathway to 3rd-grade reading and the full realization of our state’s constitutional obligation to a sound, basic education for every child. 

Commentary, NC Budget and Tax Center

Budget & Tax Center: A costly cover for more business tax cuts in N.C.

Senate President Pro Tempore Phil Berger

In the same session that North Carolina senators approved a proposal to cut taxes for high net worth companies, lawmakers have also passed legislation increasing the standard deduction.

The stated reasons for doing so is that it will reduce taxes for everyday North Carolinians by increasing the threshold of income upon which the low flat income tax rate, 5.25 percent, is applied.  It will also, as proponents claim, mean fewer people will file income taxes.

The policy reasons for reducing the income tax rolls are limited. In the end, fewer people filing income taxes means fewer people are able to receive credits and deductions that could help them with the higher tax load they carry due to sales and excise taxes — not to mention rising property taxes at the local level.

The biggest problem with continuing to raise the standard deduction threshold is that a large number of North Carolinians claim the standard deduction rather than itemize.  By continually increasing the income threshold, we are delivering a costly tax break that is poorly targeted to families struggling to get by.  It is a policy that does less work than is needed right now to address the upside-down nature of the tax code.

Analysis from the Institute on Taxation and Economic Policy shows that 27 percent of the total net tax cut from the increase in the standard deduction will actually go to the top 20 percent, while just 7 percent will go to the bottom 20 percent whose income leaves them in poverty each year. Read more

Commentary, Education, Legislature, NC Budget and Tax Center, News

Budget & Tax Center: Another cut for big business that will reduce revenue for schools, communities

N.C. Senate finance leaders are moving a tax cut bill for businesses with high net worth this week, even as the legislature has failed to put forward a comprehensive investment plan addressing the priorities of communities across the state.

That’s right. There is no final, comprehensive budget for our communities, but legislative leaders in the Senate will still give tax breaks to big companies.

Senate Bill 578 will adopt the franchise tax cuts proposed in the legislative budget at a time when corporations across North Carolina are paying the lowest corporate income tax rate applied to their profits in any state that taxes corporate income.

As the Budget & Tax Center detailed in an earlier analysis, this is not a tax cut that will reach the majority of businesses in North Carolina, and like corporate income tax cuts before it, it is unlikely to change the decisions of businesses around hiring or location.

There are numerous rigorous studies of the issue to confirm that the theory behind such claims hasn’t played out in reality: Businesses aren’t going to relocate en masse because of a franchise tax cut.  This makes sense given what researchers have noted as the real-world problems with suggesting that a tax cut for business will deliver new economic activity.

  1. When businesses get a tax cut, particularly at the state level, that means that other people will have to pay in the form of higher taxes or spending cuts. Balancing out the net effect on the economy has led most researchers to conclude that even new economic activity doesn’t replace those dollars or minimize the harm of the tax shifts and spending cuts that result from the loss of revenue.
  2. All state and local taxes paid are a very small share of businesses’ total expenses, estimated at between 2 and 4 percent. That means even substantial tax cuts will have little effect on profitability.
  3. Relocation decisions are rare and not the primary source of job creation in a state. And most researchers have found that relocation decisions are more likely driven by proximity to markets or suppliers, quality of roads and transportation networks and availability of workers, for example.

Perhaps the most pernicious false claim around this and all tax debates in North Carolina is that tax cuts will generate more revenue by driving greater economic activity.

The reality, of course, is North Carolina will have less revenue because legislative leaders chose to cut franchise taxes for companies, particularly companies with net worth over $20 million from which most franchise taxes are collected.

The legislature’s Fiscal Research office estimates the franchise tax provision will reduce revenue by $240 million in the first year, and grow to $270 million in Fiscal Year 2023-24.

Those dollars could make significant progress toward pressing needs for everyday North Carolinians by:

  • Making child care more affordable
  • Investing in affordable housing development
  • Supporting home health care and services for the state’s older population
  • Monitoring the quality of our air and water and the level of regulation needed to more adequately protect against toxic dumping

North Carolina leaders have not prioritized these pressing needs for North Carolinians in their piecemeal budget approach, but they appear certain to continue to deliver a piece to big companies.

Alexandra Forter Sirota is the director of the N.C. Justice Center’s Budget & Tax Center.