NC Budget and Tax Center

It bears repeating that the first rule of climbing out of a hole is to stop digging. But some policymakers obviously haven’t learned that lesson. They are pushing more tax cuts for those who need them least, even though revenue for schools and other priorities is coming in below projections because of tax cuts that have already gone into effect.

Last week Senator Berger laid out a tax plan that would allow profitable corporations to escape some of their responsibility for supporting the public services that benefit their businesses and the stability of the broader economy. The plan would do nothing to address the uneven recovery from the last recession, which has done nothing to boost the wages of most North Carolinians.

The senator said he will propose another round of corporate income tax cuts: reducing the rate to 3 percent from 5 percent by 2017 and changing the way profitable corporations account for their income for tax purposes. and Profitable corporations have already seen their tax rate drop from 6.9 percent, at a cost of nearly $350 million. Dropping the rate to 3 percent would mean roughly $500 million in additional revenue lost to the state’s schools, public health care and courts, to name just a few of the core public services that support opportunity for everyone in the state.

There is little hard evidence to support Senator Berger’s claim that corporate income tax cuts are a good strategy for boosting the state’s economy. Tax cuts to profitable corporations flow to shareholders and thus cannot be guaranteed to stay in the state and generate economic benefits for North Carolina. Read More

NC Budget and Tax Center

Policymakers have chosen to reduce state spending in recent budgets and appear poised to continue that approach even despite a recovering economy.   Such small thinking ignores the fundamental role of state budgets in supporting the broader economy and delivering opportunities to communities and families.

The state’s most recent budgets (and current budget proposal from the Governor) break dramatically with our state’s past and put at risk the foundations of a strong economy by spending at historically low levels as a share of the economy. An analysis of data back to 1970 on state spending shows that North Carolina today is dedicating a lower level of our total resources to public services than we did in 1973 (see graph). That year was the start to the 1973-1975 recession characterized by the oil crisis and stagflation, and largely recognized as the end of the post-World War II economic boom. It’s also when computers conducting sophisticated analysis took up entire rooms or buildings, office work had not yet been impacted by the use of personal computers and those that did exist could store just 16 lines of text.BTC - Collective Commitment 1973

Today, North Carolina has passed the fifth year of the official recovery from the Great Recession that started in 2007. For six years in a row state spending has continued to erode and the Governor’s budget would continue that trend.

Looking at state spending as a share of the economy, or total state personal income, is akin to the way in which federal budgets are assessed relative to GDP. Importantly it represents a reflection of our collective commitment to build an economy that works for everyone. Such a measure also provides a way to assess whether we are spending more or less over time while also considering that with economic growth there are more resources available and needed to support the economy.

The evidence is clear on this point: smart state spending is necessary to support positive economic outcomes. Read More

NC Budget and Tax Center

A new report by the Center for American Progress highlights state actions that have increased access to post-secondary education for all students regardless of immigration status.  The report outlines the importance of state legislation on tuition equity given the lack of federal progress on the issue.  But it also highlights the differences in experiences for students depending on where they live.

For those students living in North Carolina where tuition equity is not the law, the barriers to access and completion of a post-secondary education and skills training for future jobs are higher.  In Texas, where students are able to pay in-state tuition and access financial aid, the benefits have been real for those individuals and the broader economy and state.  The costs are also minimal:

Of the 1.3 million students enrolled in Texas public universities and community, technical, and state colleges during fiscal year 2012, 20,049—or 1.1 percent—benefited from the Texas DREAM Act and paid more than $40 million in tuition and fees toward higher education. Meanwhile, only 2,819 Texas DREAM Act students received state-sponsored grant aid at a cost of $9.56 million—just 2 percent of the more than $430 million in state-supported grants distributed to more than 130,000 students across the state.

These small costs also do not take into account the enormous tax contributions made by undocumented immigrants. In 2010, undocumented Texas residents paid more than $1.6 billion in state and local taxes, a portion of which went toward supporting Texas’ public colleges and universities.

Since the start of the new year, 12 states have introduced tuition equity legislation. 29 states have some type of legislation providing tuition equity to students without documents or with Deferred Action for Childhood Arrival status. It is time for North Carolina to move forward with tuition equity.

NC Budget and Tax Center

On Wednesday, the Senate Finance committee heard presentations that made the case for more changes to the state’s tax code. While beginning with many of the economic realities in North Carolina—stagnant and falling wages, persistently high poverty, and slow growth— the presentation prescribes the wrong medicine: more cuts to the income tax in favor of applying the sales tax to more goods and services.

It’s a surprising conclusion to reach as prior “reform” efforts based on income tax cuts for the wealthy and profitable corporations have not allowed North Carolina to invest in the state’s economic recovery. It’s even worse with evidence mounting that shifting more of the tax load onto average people is causing real damage.

It’s clear that more tax cuts for the wealthy and profitable corporations aren’t the best tools to address the economic issues highlighted in the presentation. Tax cuts do nothing to address the fact that workers aren’t seeing their wages grow, despite increasing productivity. Tax cuts that primarily benefit the wealthy and profitable corporations do not help alleviate poverty. Instead, such an approach jeopardizes the ability of the state to invest in pathways to opportunity—the schools, research and development, and business start-ups that create a vibrant economy.

We have long advocated for tax reform, and a genuine and thoughtful plan to modernize our tax code is still needed today – not in spite of 2013 tax changes, but because of them. But shifting the state away from the income tax to rely more on sales taxes, as the leadership presented yesterday, will make things worse, not better. It will not help address the ups and downs in revenue collections and will mean that everyday North Carolinians carry more of the tax load while wealthy taxpayers get a tax cut. This is especially true if such tax shifts don’t seek to offset a greater reliance on sales tax with a strong state EITC.

Here is what should be the focus of legislators’ reform efforts: Read More

NC Budget and Tax Center

When putting together a budget, the debate typically entails where funding has expanded, what new initiatives have been introduced, and how much funding has been cut. However as North Carolinians are learning, when the baseline for comparison changes, spending that was once guaranteed may go away and new initiatives may only serve to undercut other important public investments that drive the state forward.

The base budget, or continuation budget, has traditionally been the starting point estimate of what North Carolina’s policymakers needed to invest to maintain current service levels. As we have written about before, recent changes to what is included in the base budget— removing enrollment growth, for example —has meant a shifting foundation upon which assessments are based. Rather than increasing transparency, this change masks just how little improvement there is in the Governor’s budget proposal.

Better information about what is in and what is now out of the base budget is needed so that the public can better understand whether so-called expansions are truly that or are just keeping up, and whether new initiatives are financed sustainably or through cuts to core programming. The Department of Public Instruction submitted a request that included a greater amount of investments than were ultimately funded as did the courts.  As an example, DPI requested $69.9 million in added investment to their base budget but got a cut of $56.3 million in their base budget. Specific details for all areas of the budget are needed to understand what is in and out of the base funding.BTC - Base Budget

In a preliminary look at the Governor’s budget, it is telling that the continuation budget (or base budget) for FY 15-16 falls $235 million below the current fiscal year budget spending. Moreover, as my colleague noted in a post yesterday, the proposed appropriation level by the Governor covers nearly exactly the enrollment growth costs forK-12 education, universities and Medicaid. In previous budgets, these enrollment growth costs would have been part of the base budget. Expansion items, such as further pay raises or increased foster care payments, are the result of shuffling the deck—moving dollars around without meaningfully reinvesting overall.

Pre-recession levels can also be used as a point of comparison in this budget debate to demonstrate the lack of reinvestment. Looking in this way, the Governors recommended appropriations remains $1.4 billion lower than the spending level at FY 07-08 despite a growing population and the state surpassing the fifth year of the economic recovery.

Changes to the base budget make clear that very little progress can be made by state policymakers as long as revenues come in under projections as a result of the costly tax plan since revenue growth is not keeping up with growth in enrollment and other program costs.