NC Budget and Tax Center

The News & Record had an editorial this weekend on the inconsistent choices policymakers have made as it relates to tax code spending. Some tax breaks have ended while others remain and even may get expanded this session. From the piece:

Tax breaks for movie productions and historic property renovations are out. Tax breaks for more data centers are in. The North Carolina legislature is still picking “winners and losers,” but the criteria have changed.

The bottom-line is that policymakers have not established the appropriate processes to evaluate tax code spending and base their decisions on the results of such analysis. Nor do they have a set of economic development goals that reflect the realities of different regions and the needs of North Carolinians.

The result is that the pursuit of ideological purity by eliminating all tax breaks no matter their public good often falls prey to the influences of various political forces that continue to carve out special tax breaks, often inconsistently.

As we noted in a recent piece on the options available to policymakers to address the revenue shortfall, a renewed look at tax code spending is needed. So too is a criteria and process for evaluating that spending against a set of shared and relevant goals for our economy.

NC Budget and Tax Center

New analysis from the Economic Policy Institute on the performance of wages across the distribution in 2014 finds that with few exceptions inflation-adjusted wages fell or stagnated for most groups. This isn’t anything new as there has been a long-term trend of wage stagnation that has meant the majority of workers are struggling to make ends meet even as they are contributing to grow the economy.

What is new and important from this analysis is what happened for wage earners at the bottom end of the wage scale. Workers in the 10th percentile saw their wages increase on an hourly basis by 11 cents or by 1.3 percent. The authors attribute this increase to the series of state-level minimum wage increases that have occurred in states in 2014 and which have bene proven to lift wages particularly for those at the bottom of the wage distribution. It turns out that nearly half of the country’s workforce lived in states where the minimum wage was increased in 2014.

For those states that haven’t raised the minimum wage, here is some further evidence of the real benefit of doing so. As the report author notes:

The great news in this story is that policy can actually affect the labor market. And, it is imperative that we use all the policy levers at our disposal to help rejuvenate the economy to create jobs and build stronger income growth for the 99%.

To read the full report, click here.

NC Budget and Tax Center

Yesterday, Lawrence Mishel from the Economic Policy Institute made the compelling case that policymakers have missed the mark by focusing on tax levels rather than wage stagnation in their pursuit of improving growth rates and the economic well-being of the majority of Americans.  As Mishel points out:

Wage stagnation is a decades-long phenomenon. Between 1979 and 2014, while the gross domestic product grew 150 percent and productivity grew 75 percent, the inflation-adjusted hourly wage of the median worker rose just 5.6 percent — less than 0.2 percent a year. And since 2002, the bottom 80 percent of wage earners, including both male and female college graduates, have actually seen their wages stagnate or fall.

At the same time, taxation does not explain why middle-income families are having a harder time making ends meet, even as they increase their education and become ever more productive. According to the latest Congressional Budget Office data, the middle 60 percent of families paid just 3.2 percent of their income in federal income taxes in 2011, less than half what they paid in 1979.

Mishel goes on to detail a policy agenda that is far better targeted than tax cuts for delivering benefits to the majority of American workers and the broader economy.  This agenda includes some familiar proposals also appropriate for state policymakers: addressing wage theft and misclassification, raising the minimum wage and protecting workers rights to collectively bargain.  It also includes important macro-economic and trade policy choices like stopping the offshoring of jobs through trade deals like the Trans-Pacific Partnership and ensuring the Federal Reserve holds interest rates down until wage growth is more robust.

Again in Mishel’s own words:

Contrary to conventional wisdom, wage stagnation is not a result of forces beyond our control. It is a result of a policy regime that has undercut the individual and collective bargaining power of most workers. Because wage stagnation was caused by policy, it can be reversed by policy, too.

NC Budget and Tax Center

The House is poised to to introduce an “economic development” bill that they claim will boost the economy, but almost certainly will fail to provide real solutions to the lack of available jobs and long-term economic mobility needed by North Carolinians. While the full details of the bill have not been released, reports suggest it will include more give-aways to large corporations that will do little to change North Carolina’s economic vitality. Signals to date indicate that the bill will expand corporate incentives and give large multi-state companies another big tax break. We’ve already read this story before, and it doesn’t end well for many small businesses, struggling rural communities, or workers who have not seen a raise in years. Any new proposals should be carefully considered, but old ideas that have already proven inadequate won’t magically fix what ails the North Carolina economy.

Certainly, North Carolina’s labor market could use the support of sound public policies that could strengthen the recovery and ensure that it is delivering broad benefits to all North Carolinians not just a select few. The state’s job deficit stands at more than 400,000 jobs needed to provide employment to all who want to work, the number of unemployed people in the state remains elevated relative to pre-recession levels and poverty has not come down nor have wages grown as the economy has recovered.  There is a long way still for North Carolina to go in addressing the economic damage of the Great Recession, ensuring all communities enjoy a recovery and that all who want to work can and can support their families doing so.

At this critical moment then public policies should not be blunt instruments but instead reflect the real economic challenges facing North Carolina and address them head on. Here are some of the criteria that we will use to assess the bill when it is available: Read More

NC Budget and Tax Center

The lessons of the past should help us make better choices in the future. North Carolina’s history of unemployment insurance changes provide one clear lesson:  cutting taxes for employers in good times can lead to serious harm in the long-term. A bill moving to the floor tomorrow that makes changes to the unemployment insurance system could  ensure the mistakes of the past aren’t made again by including provisions that require the Trust Fund to truly reach solvency before cutting employers taxes.

It was afterall the lack of adequate funds in the state Trust Fund before 2007 was due to tax cuts for employers that happened in good times. This series of tax cuts for employers in the 1990s—detailed here—meant the Trust Fund could not meet its obligations to pay unemployment insurance to workers who lost their job through no fault of their own during the historic job losses of the Great Recession. While the unemployment insurance Trust Fund appears ready to pay back  funds borrowed, it has been able to do so largely through drastic cuts to unemployment insurance for workers that make it more difficult for jobless workers to keep looking for work and support their families’ most basic needs.  Such cuts in a downturn and slow recovery also undermine the systems’ function in the economy as a stabilizing force in a downturn.

And the repayment of the debt is just the first step in getting the fund solvent. By every measure of solvency, North Carolina still has a long way to go to be healthy enough to weather another downturn.

Now as the Trust Fund debt is nearing repayment and employer contributions will begin to strengthen the fund ahead of future downturns, it is critical that policymakers reduce the likelihood that the state will need to borrow and that is adequate to provide unemployment insurance payments to jobless North Carolinians. Here are two provisions that policymakers should include to take a more fiscally responsible approach to the unemployment insurance Trust Fund. Read More