NC Budget and Tax Center

The announcement today that North Carolina has paid down its unemployment insurance debt to the federal government is just a first milestone in the path to a solvent system. It is one that has been achieved through a series of harmful cuts impacting jobless workers, their families and communities and an approach that will ultimately reduce the long run potential of the system to serve as stabilizing force in the economy.  So as far as milestones go, the celebration seems premature.

Here are few things to remember about the unemployment insurance debt and the choice that policymakers made to pay employers’ debt with cuts to unemployment insurance for jobless workers.

1. Yes, historic job loss contributed to the need for the state to borrow from the federal government to ensure payments during the Great Recession, but that wasn’t the driver. It was tax cuts in the 1990s that set the system up to fail even before the recession hit.

2. North Carolina’s unemployment insurance system was pretty much middle of the pack on most measures of adequacy, reach and financing when policymakers decided to make their changes to it in 2013.  These changes have reduced average weekly benefit amounts and the number of jobless workers accessing the system.

3. The dollars from cutting benefits for jobless workers contributed the most to debt repayment according to estimates by the Upjohn Institute and Fiscal Research Division.  Nearly two-thirds comes from cuts to benefits and just 0.7 percent from state taxes.

4.  The final payments on the debt mean employers will no longer pay the automatic federal tax increases that were the primary way by which they contributed to the success of this system that benefits them.  The automatic federal tax increases went up $21 per worker each year or, for a full time employee, about a penny for every hour that worker worked. By 2013, employers were paying three cents more per hour worked per employee. Unemployment insurance taxes total represent about 0.1 percent of total business costs.

5. Unemployment insurance taxes are not a barrier to job creation or strong economic performance.  The opposite is the case: ensuring that the unemployment insurance system can serve its temporary and adequate wage replacement function means that employers are less likely to have to eliminate jobs and more able to rebound from a downturn.

Failure to make changes now to the financing of the unemployment insurance system by ensuring that employers contribute adequately and do not receive more tax cuts (as they will under current law) before the Trust Fund is truly solvent will undermine the system’s stabilizing force in the economy.  Future downturns could require more borrowing, benefit cuts or tax increases if policymakers prematurely reduce the state taxes contributed by employers. Failure to revisit the benefit cuts and the harm they have created will undermine the support of this system to the economy.


NC Budget and Tax Center

A new report commissioned by Think NC First and written by John Quinterno gives a new moniker to the official recovery that began in 2009: incomeless.  Add that to the “jobless” and “uneven” labels that the recovery has earned to date and the reality for us all begins to look not at all like recovery.  The report takes a thorough look at income in North Carolina and finds that the trends are “running in reverse.”  Among the findings:

  • From 2007 to 2013, the inflation-adjusted income of the median North Carolina household dropped by more than 8%. Median income fell by 5.5% from 2007 to 2009 and by another 3.2% during the recovery that started in 2009 through 2013.
  • From 2009 to 2013, real average household income fell or remained unchanged for every household income group in North Carolina except for the top 5%.
  • The distribution of household income in North Carolina has grown more unequal since 2007, and the distribution of income in North Carolina in 2013 was more unequal than in the nation as a whole.
  • The annual earnings of the median worker (ages 16+) fell by 7.4% between 2007 and 2013.
  • Real median household income in North Carolina was effectively no different in 2013 than in 1984.

As Quinterno points out, the lack of jobs and other labor market conditions have put downward pressure on wages but policy choices have made worse these wage outcomes.

Allowing inflation to erode the value of the minimum wage, refusing to enforce and to modernize labor laws, undercutting the effectiveness of the unemployment insurance system, making work more costly by repealing the state earned income tax credit, and enacting tax policies that fail to boost growth yet drain needed public revenues—these choices have tamped down wages and incomes.
Be sure to check out the full report here.
NC Budget and Tax Center

The Institute on Taxation and Economic Policy released a study this morning highlighting the current contributions of undocumented immigrants through state and local taxes. In North Carolina, undocumented immigrants pay $278 million in state and local taxes currently. These tax dollars help the state invest in public schools and various other public services.

From the report:

Like other people living and working in the United States, undocumented immigrants pay state and local taxes. In addition to paying sales and excise taxes when they purchase goods and services (for example, on utilities, clothing and gasoline) undocumented immigrants also pay property taxes directly on their homes or indirectly as renters. Many undocumented immigrants also pay state income taxes.5 The best evidence suggests that at least 50 percent of undocumented immigrant households currently file income tax returns using Individual Tax Identification Numbers (ITINs) and many who do not file income tax returns still have taxes deducted from their paycheck.

Under President Obama’s executive actions, that would provide a pathway to temporary status for children who arrived here without documents and parents of US citizens, the contributions of North Carolina undocumented immigrants would increase to $372 million.

At that time, undocumented immigrants would be paying an effective tax rate of 8.3 percent compared to the 5.3 percent paid by the top 1 percent of North Carolina taxpayers whose average income is $1 million. It turns out all those paying taxes in North Carolina face an upside-down system.

This Tax week it is important to recognize that everyone in NC pays taxes. The Executive Actions on immigration that would provide temporary status to currently undocumented immigrants would increase state and local tax revenue at a critical time in NC.

NC Budget and Tax Center

Ahead of Tax Day tomorrow, check out these five fast facts on taxes in North Carolina and remember: taxes make possible the smart investments that can build a stronger economy and vibrant communities across the state.

Dollar Bill BTC graphic-PNote the graphic above reflects only General Fund dollars.

  1. More than half of the North Carolina’s revenue is collected through individual income taxes.
  2. More than half of North Carolina’s revenue invests in K-12 and higher education.
  3. The total taxes paid in the state by profitable corporations as a share of the economy has dropped from 9 percent in 1990 to 6 percent in 2014.
  4. North Carolina’s lowest income taxpayers pay 9.2 percent of their annual income in total state and local taxes while the state’s highest income taxpayers, with average incomes of $1 million, pay just 5.3 percent.
  5. Revenue growth year over year is far below historic levels limiting the ability of the state to support a thriving economy.
NC Budget and Tax Center, Raising the Bar 2015
Editor’s note: This is an installment in “Raising the Bar” — a new series of essays and blog posts authored by North Carolina nonprofit leaders highlighting ways in which North Carolina public investments are falling short and where and how they can be improved.

We have been highlighting the views of experts about where North Carolina needs to invest to have the maximum impact and will continue to do so throughout the budget debate. The combined potential of smart spending with adequate revenue can improve the state’s economy and ensure more people can contribute to the activities and institutions that make our state great.

There has been very little, however, to suggest that policymakers are willing to tackle the challenge of a tax system that no longer is capable of supporting the core public services that deliver opportunity. Instead, there continue to be proposals to cut the income taxes and shift limited revenue around without addressing the fundamental issue that there are too few dollars.

As we have written about at Prosperity Watch, the state’s revenue is not only coming in far below projections it is growing far below historic averages. The result is that today we don’t have the revenue needed to invest for our future. And in that future we can anticipate ongoing self-inflicted revenue challenges unless policymakers address the inadequacy of our tax code.

North Carolina is not broke. There are the resources to make a commitment together to building that foundation. It will require that the state’s wealthiest residents—who have captured the entirety of income growth since the recovery began—and profitable corporations—who continue to reach record profits—contribute according to their ability. They, like the state, stand to benefit. After all a stronger economy is possible when more Tarheels are educated, more businesses have skilled workers, more main streets have vibrant small businesses and more communities are safe and healthy places to live.

Here are some of the big picture ideas that policymakers should consider in developing a tax system that can achieve our shared goals of strengthening the state’s economy and supporting families and communities across the state.

  1. Restore an income tax rate structure that ensures that all taxpayers carry an appropriate share of the tax load. This could provide $390 million if you keep the current 5.7% rate for the majority of taxpayers and add two brackets for the wealthiest in the state.
  2. Restore a vital tax credit for low-income working families before expanding the sales tax any further.
  3. Make sure that large, profitable corporations are paying to support the services they use and benefit from. This could provide $200 million if the corporate income tax rate is set at 6 percent which is in line with the region.
  4. Eliminate special-interest tax preferences that aren’t helping the state’s economy.

North Carolina has the capacity to make sure that our investments can grow an inclusive and strong economy. Policymakers just need to recognize—as they have done in the sales tax allocation debate—that revenue serves as the mortar in the foundation to supporting a vibrant economy.