NC Budget and Tax Center, Trump Administration

Young undocumented immigrants’ tax contributions would drop by nearly half without the protection of the DACA program

Young immigrants eligible for DACA (Deferred Action for Childhood Arrivals)  annually contribute $2 billion in state and local taxes, according to new analysis from the Institute on Taxation and Economic Policy. The ITEP report finds that this number would drop by nearly half without DACA protection at a time when the Trump Administration has sent mixed signals on whether it intends to honor the DACA executive order in the long term.

The 1.3 million DACA-eligible population pays an average effective tax rate of 8.9 percent, which is on par with the state and local tax rate paid by the middle 20 percent of Americans. ITEP’s report analyzed taxes paid by working immigrants eligible for and receiving DACA (852,000 people), as well as taxes paid by those who are eligible but not receiving DACA (453,000 people).

DACA recipients’ state and local tax contributions increase substantially in part because they can legally work and are required to file income taxes using the Social Security number granted through their DACA enrollment. Employment rates in fact go up for young immigrants receiving DACA protection (from 51 percent to 87 percent), and they experience increased wages. ITEP estimates that young immigrants’ state and local tax contributions would drop from $2 billion to $1.2 billion without DACA protection, while their collective tax contributions would increase by $504 million if they were granted full citizenship.

In North Carolina – where more than 65,000 young people are eligible for DACA – young immigrants’ tax contributions could be as high as $75 million if all those eligible received DACA status.  State and local governments would lose $35 million if DACA protections are not continued, compounding further the loss of dollars for critical investments in public schools, community infrastructure, and the health and well-being of families.

The report concludes: “If the Trump administration fails to protect this population from deportation, the nation risks forcing them back into the shadows and losing the economic and societal contributions these engaged young people are making in their communities.”

NC Budget and Tax Center

Early childhood educators in NC struggle to make ends meet, afford their own children’s early education

One issue central to ensuring the quality of early childhood education is something that does not garner as much attention as available pre-K slots or the rate at which providers are reimbursed for care:  how much early childhood educators are paid.

Evidence shows that paying workers a living wageearly childhood educators in particular—can improve job performance and strengthen connections to work and employers.

In North Carolina, as in the rest of the country, early childhood educators face significant barriers to make ends meet. Nationwide, they earn just 39 cents for every dollar earned by workers in other occupations. This is compounded by the higher likelihood that early childhood educators do not have access to health care benefits or retirement plans.  They are also more  likely to live in poverty compared to similarly situated workers in other occupations. And North Carolina’s early childhood workers have seen their median wage decline in the recovery according to analysis presented in Education Week.

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These maps from the Economic Policy Institute show that in nearly all North Carolina counties more than half of early childhood educators in either preschool or child care settings cannot afford the local cost of living on their hourly wage. In Buncombe and Henderson County, more than 65 percent of early educators in child care settings cannot afford local costs on their earnings.  In Brunswick County, more than 80 percent of early educators cannot afford local costs on their earnings. The failure of wages to keep up with costs of basic goods and services means that many workers will go without those basics or forced to close the gap by seeing support from family, charity, and public programs.

Early childhood programs also remain woefully out of reach for early childhood educators to send their own children based on analysis of median earnings. The U.S. Department of Health and Human Services’ official affordability threshold for child care costs is 10 percent or less of a family’s income. In North Carolina, infant care represents 47 percent of a child care worker’s wages and 38 percent of a preschool worker’s wages.

Early childhood educators’ wages are an important marker of how well North Carolina is doing in delivering high quality childcare and providing for the well-being of young children. Proposals that boost the wages of qualified early educators are critical as is making sure that the state’s early childhood educators, like all of our workers, can make ends meet through work.

 

NC Budget and Tax Center

Some simple NC tax code changes that could improve children’s lives

North Carolina is underinvesting in the programs and services during early childhood that have proven to prepare children for Kindergarten and to read by third grade, protect them from abuse and prevention, and ensure their healthy development.  The Week of the Young Child represents an opportunity for North Carolina leaders to assess all that they are doing to improve the outcomes and well-being of the state’s youngest residents.

Better investments aren’t the only way that North Carolina policymakers can support early childhood: tax policy is a tool that can help working families and children in particular. North Carolina has an opportunity do far more in this space, particularly in light of the strong evidence that shows the value of tax credits for working families can generate greater returns for more families and communities.

The Earned Income Tax Credit and the Child Tax Credit have been demonstrated to support children’s healthy development and the affordability of their early care and education even as they both promote work and reduce poverty as well.  To improve upon the benefits of these federal policies, North Carolina can enact a state EITC and make the current state Child Tax Credit refundable and targeted to middle and low income taxpayers who struggle the most to provide for their families on low incomes.

The Child and Dependent Care Credit is yet another tax policy that supports children’s healthy development by making child care more affordable.  The recommended biennial budget recently proposed by Governor Cooper includes such a tax credit that partially offsets employment-related expenses for child and dependent care. Childcare costs represent the largest component of the household budget and impact the ability of individuals to work and provides for their families.

The inclusion of the tax credit in the Governor’s budget is as a positive step forward to address an upside-down tax system and ensure that the state’s tax code works for all North Carolinians. It’s one that should serve as the foundation for action by the North Carolina General Assembly to enact tax policies that support young children’s healthy development and the economic security of their families. Making these tax policies refundable and available to the state’s poorest children and families will generate the greatest return. As research has shown, an additional $3,000 in the household during early childhood has a significant effect on children’s educational attainment and lifetime earnings.

An investment in young children is a concrete investment in North Carolina’s future.

Commentary, NC Budget and Tax Center

Coming Trump/Ryan tax proposals promise giveaways to the rich; hard times for North Carolina

Donald Trump speakingAs my colleagues have detailed over the past few weeks, President Trump’s budget blueprint proposes significant cuts to major programs and funding that support economic opportunity, health and well-being of North Carolinians. These cuts will allow the President to pursue increases in defense spending.

They are also required if the President and Speaker Ryan are to pursue the kind of overhaul of the federal tax code that would reduce revenue significantly over time. As has also been noted, much of the discussion of the federal tax changes has also been tied to the repeal of the Affordable Care Act where savings from reducing health care coverage are hoped to allow for the depth of tax cuts desired.

While we wait for the details on federal tax changes from President Trump and Congress, it is useful to review past proposals. These proposals have included reducing the corporate income tax rate and eliminating the alternative minimum tax for corporations, reductions in personal income tax rates and transfer tax as well as elimination or capping of itemized deductions and increases in the standard deduction among many other changes.

Here is what analysts have found in reviewing these proposals.

  1. The tax plan Trump put forward during his campaign would increase the federal debt by $20.9 trillion by 2036.
  2. The “Better Way” tax plan proposed by Speaker Paul Ryan would reduce the effective tax rates for the most well-off Americans by 8 percent, a change that is four times bigger than the change in effective tax rates for any other income group.
  3. Both tax plans represent a significant tax cut for the top 1 percent of taxpayers.
  4. The Border Adjustment Tax proposal for how the US would tax corporate profits would be regressive, fail to end offshore tax avoidance and violate trade agreements.

Because North Carolina’s tax code is tied to the federal code in various ways, the changes at the federal level will have an impact on states’ revenue collection and who pays. It is difficult to say exactly what the end result for North Carolina would be not least because the state has changed so much of its tax code in recent years. However, as ITEP writes, from eliminating the estate tax to treatment of capital gains and interest to “ending the deductibility of state and local taxes, creating a new deduction for child care expenses, changing the taxation of carried interest, altering expensing of business investments, and other corporate tax changes such as “border adjustment” could all have ripple effects on state revenue systems.”

Most notable in the overall assessment of the current federal tax code proposals is that it will become less progressive. And that means many North Carolina taxpayers will face an even heavier tax load given the already regressive nature of the state’s tax code today.

NC Budget and Tax Center

Why cutting taxes for business again makes no sense

When businesses pay their share of taxes, North Carolina is able to invest in the things that build thriving communities and a prosperous economy – things like good schools, roads, public health and a clean environment.

The Senate’s tax plan, Senate Bill 325, includes a tax cut for businesses that goes against this proven principle.  There are four reasons why this plan will move our state backwards.

  1. North Carolina’s corporate income tax rate is already the lowest in the country.

North Carolina’s corporate income tax rate, now 3 percent, is the lowest in the country among 32 states with a flat corporate income tax rate, and the states with graduated corporate income taxes all have top rates above 3 percent as well. (Four other states – Nevada, Ohio, Texas and Washington – do not have a corporate income tax; they impose a gross receipts tax – which is a tax on the total gross revenues of a company).

On January 1st of this year, North Carolina reduced the corporate income tax rate from 4 to 3 percent which will reduce revenue by $500 million when in effect for a full fiscal year.  This was an automatic reduction built into the 2013 tax changes that is happening even as enrollment costs associated with public schools and universities are increasing and health care costs for retirees are rising.  It happens as the state struggles to rebuild Eastern North Carolina communities post-Hurricane Matthew and cope with the implications of the increasing likelihood that Congress will shift more costs to states.

  1. Another corporate tax cut will not lead to meaningful economic growth, research indicates.

The proposed corporate tax cut will not provide the needed local boost to address North Carolina’s economic challenges or catalyze greater job growth where it is needed.  That is because, as research has found, the impact on corporate investment of a small cut in the corporate tax rate would not only be small but require years to fully take effect.  The consensus of that research is that even a very large, 10 percent reduction in total state and local taxes paid by businesses – much larger than the reduction in corporate income taxes alone in the Senate bill – is likely to increase economic output and jobs by only about 2 percent before accounting for any offsetting negative impact on the provision of public services that businesses rely on such as efficiently run courts and high quality public schools that help build an educated and trained workforce.

Additionally, there is no reason to believe that tax cuts going to big multistate corporations will benefit North Carolina’s economy: businesses may choose instead to use the money to finance out-of-state investments or distribute these additional dollars in the form of dividends to their shareholders who mostly live out of state. Estimates by the Institute on Taxation and Economic Policy suggest that just 18 percent of the corporate income tax rate cut would stay with residents of North Carolina.

  1. Cutting income taxes on small business won’t do much for North Carolina’s economy, either.

The Senate bill proposes an additional cut in the personal income tax rate, sometimes justified on the grounds that this will encourage job creation by small businesses that pay tax on their profits through the personal income tax rather than the corporate income tax.  But Kansas completely eliminated its personal income taxes on these businesses and the rate of small business startups actually declined in the following two years. Read more