The Senate budget shows the high price that ordinary North Carolinians will pay for the tax cuts lawmakers enacted last year for the wealthy and profitable corporations.

Thousands of North Carolinians who are older, blind or have disabilities will no longer get the health care they need, schoolchildren will lose the support of teaching assistants, college will continue to be more expensive for those who can least afford it and struggling communities will have fewer grant resources to build their economic capacity.

The Senate’s proposed budget does not put North Carolina on a sound economic footing for the future since it fails to make much-needed investments in education, job training and healthy communities. This is not a responsible plan, but a failure to recognize that adequate revenue is needed to support the services that will help our state thrive.

Last week, the folks at five thirty eight, a non-partisan website dedicated to statistically robust analyses of social, political and economic phenomena led by Nate Silver, released an analysis of claims that unemployment insurance cuts at the national level have been good for the country’s economy and jobless workers.

The claims sound eerily familiar to those in North Carolina of a Carolina Comeback. But similar to those claims, the folks at five thirty eight find these national claims to lack support from available evidence.

First from their findings specific to those who have lost unemployment benefits: “Of the roughly 1.3 million Americans whose benefits disappeared with the end of the program, only about a quarter had found jobs as of March, about the same success rate as when the program was still in effect; roughly another quarter had given up searching.”

Second, jobless workers, particularly the long-term unemployed, are not moving to employment. From the article: “Only about 10 percent of the long-term unemployed find jobs each month, a metric known as the job-finding rate. Among those unemployed six months or less, the finding rate is nearly 25 percent….”

Cutting off unemployment benefits have not delivered improved job prospects for the hundreds of thousands still seeking work across the country and in North Carolina. A different approach is needed.

North Carolina policymakers have taken a very important first step in ensuring that if fracking begins in our state, there will be revenue collected as the state’s natural resources are depleted. A tax on natural resource extraction, referred to as a severance tax, is an important tool to ensure that the costs associated with these activities—the construction of roads and environmental monitoring, to name a few—are paid for by producers.

It is critical, however, that the tax structure is set up at the outset in a way that is adequate to cover these immediate costs and the loss of these resources for the future as well as that the tax does not subsidize a profitable industry for their private economic activity.

The Senate gave tentative approval yesterday to the omnibus Energy Modernization Act which includes the severance tax for fracking. Here are the specifics on the tax itself:

  • The tax is applied to the total gross price delivered to market which allows the producer to subtract the cost of delivery of the natural gas from the total gross cash receipts from the sale of natural gas. The use of market value is similar to 18 states with severance taxes. However, the fact that producers can deduct costs is distinct from West Virginia and Kentucky and other states which do not allow those costs but instead levy the tax before transportation or transmission.
  • Various tax rates are phased in over the 2015 to 2021 period.  The important thing though is that the rates start very low. Beginning in 2015 and throughout this period, the tax rates would be 0.9 percent at current market value. To put that figure in context, West Virginia’s rate is 5 percent while Kentucky’s is 4.5 percent.
  • While additional higher tax rates are added if the value of gas increases beyond $7 and then $8 in future years, these higher tax rates are unlikely to be realized under current and projected market conditions.
  • The percentage rate for condensates—liquid hydrocarbon that can be recovered from gas- and oil increases from 3.5 percent to 5 percent over time.
  • The tax rate for a well determined to be marginal, that is, incapable of producing more than 100 MCF per cubic feet, is set at six tenths of one percent.
  • Finally, local governments are prohibited from establishing a tax on extraction through franchise, privelege, license, income or an excise tax. This represents another limitation on local governments to manage their local budgets. Study of how extraction of natural resources would intersect with property taxes will be conducted and findings report by January 2015.

No fiscal estimate was provided as to potential revenue gains from collecting the severance tax, so we don’t know how much revenue this new tax will raise.  This matters because research shows that the costs of fracking are quite high, while at the same time the economic case for fracking in North Carolina is very weak given the low market value of natural gas and the low deposits and lack of infrastructure in the state. So without additional evidence, it is likely that the costs associated with fracking far outweigh the revenue that is raised under this tax structure and taxpayers will be left footing the bill. Read More

Last week the Bureau of Labor Statistics and the NC Division of Employment Security released data on the state of North Carolina’s labor market. While the decline in the official unemployment rate may have generated headlines, the reality is the labor market continues to provide too few job opportunities for those who seek work.

The number of missing workers, which estimates who would be in the labor market if job opportunities were stronger, provides additional insight into the state of North Carolina’s labor market.  As of April 2014, there are an estimated 242,164 missing workers in North Carolina.  Again, these are North Carolinians who would be seeking work if jobs were available. If these workers were included in the official unemployment rate that rate would be nearly twice the official unemployment rate: 11.4 percent rather than 6.2 percent.

BTC - Missing Workers April 2014

The Governor’s budget irresponsibly jeopardizes North Carolina’s future economic prospects.

There are two main reasons: it uses one-time money that won’t be there in years to come, and it makes cuts in key areas that are the building blocks of a strong economy.

Self-inflicted revenue shortfalls resulting from the tax plan enacted last year mean fewer dollars to build a strong foundation for the state’s economy and improve the lives of all North Carolinians. The Governor’s use of one-time money and cuts to key areas, like higher education and health, are shortsighted and harmful to the state’s long-term stability and growth.

The Governor should put forward a responsible plan to pay for his priorities by stopping any further tax cuts from going into effect and urging legislators to re-examine the tax decisions made last year.  Next year’s financial gap has the potential to grow even larger as the costs of personal income tax changes are felt. State policymakers would do well to plan for that impact and its potential devastating effect on families and the state’s economy.