NC Budget and Tax Center

Top 5 Reasons why TABOR is wrong for North Carolina

There are at least 10 million reasons that the House shouldn’t change North Carolina’s constitution to arbitrarily limit what the state can do to build a stronger economy in every community: the 10 million people of North Carolina who deserve leadership that finds out what our state needs and what it will reasonably take to meet those needs,  instead of insisting on a budget formula that lawmakers pretty much picked out of thin air.

Here are five more reasons that a state constitution restricted by arbitrary and flawed formulas and income tax caps limits NC’s ability to do great things for all of its people and is the wrong approach for North Carolina.

  1. It’s already been tried and failed. Colorado enacted the nation’s only TABOR in 1992. In 2005, voters temporarily suspended it because of the deep damage it caused K-12 schools, colleges and universities, and health services. It neither improved Colorado’s business climate nor its economy. Rather, it contributed to a credit rating downgrade and so many other financial problems that and business leaders who originally supported it joined the broad coalition that won TABOR’s suspension.  As a result, other states are avoiding TABOR. It has been rejected in the nearly 30 other states where it’s been seriously considered, including at the ballot box in five states.
  2. It will lead to a tax shift and costly losses across the state. Already North Carolinians are clear that the income tax cuts pursued by state leaders are shifting taxes onto middle-class and low-income taxpayers, while giving the biggest breaks to the wealthiest households. Just today in Senate Finance, members heard that another $140 million will be raised through the sales tax to fill the hole from income tax cuts – $140 million that will come disproportionately from the pockets of those who can least afford it.  Limits to income taxes will continue to push policymakers to pursue revenue through sales tax collections, and local governments will feel the pressure to raise property taxes too.
  3. It messes with the state constitution. Pursuing amendments to the state Constitution should be done with great care and attention to core principles that advance our shared commitment to be part of a community that works.  TABOR and other tax limits would actually hurt the intention of the state Constitution to set up the rules that govern our communities by reducing our ability to make the public investment in the things that make our communities thrive.
  4. It makes future decisions more complicated and harmful. There will be no further progress toward the national average in teacher pay. There will be no effort to turn the tide on infant mortality or child abuse. There will be no possibility to revitalize rural communities or protect the health and natural resources of our state and its residents. There will be no flexibility to make sure the state has what it needs in case of a natural disaster or big economic downturn. Rather than simplicity,  TABOR is another gimmick that makes it more complicated for future policymakers faced with the needs of a growing state to represent their constituents.  Common-sense investments will be less common under a rigid formula.
  5. It doesn’t do anything that policymakers can’t already do. Already the Governor and House have chosen to be guided by the flawed formula of population plus inflation in setting the state budget. The Senate will do the same and continue to aggressively pursue more ill-advised income tax cuts at the expense of our future. North Carolina leaders have continued to cut public investments year over year despite an economic expansion and they have enacted income tax cuts that fuel these cuts. If they are already sticking to a flawed formula, why do they need to enshrine it in the state constitution?
NC Budget and Tax Center

Statement on House Budget from Alexandra Sirota, Budget and Tax Center

When it comes to building prosperity in North Carolina, the House has sets its sights even lower than the Governor’s already limited budget.

The House decision to use an arbitrary, flawed formula to determine spending won’t meet the needs of communities and families across the state.

The phase-in over the next three years of another poorly targeted tax cut represents yet another gimmick.  The increase in the standard deduction is not an effective way for policymakers to address the upside down tax code. More than half of taxpayers who make more than $95,000 a year get a tax cut under such a proposal.  North Carolina would be better off with a state Earned Income Tax Cut that helps people who work hard for low pay. An EITC wouldn’t cut taxes for people making over $95,000 a year, and it would help those who work and earn under $35,000.  And since the budget proposed doesn’t account for the full cost of this tax change, it is impossible to know what will need to be cut or where taxes will need to be raised to make up for the lost revenue to communities and the state.

In pursuing more tax cuts over investment, the House is undercutting the foundations of a strong economy. The House budget will not meet the needs of North Carolina, such as improving classroom experiences for every child, revitalizing the main streets of every community and promoting the health and well-being of families and seniors. It is time for policymakers to get serious about the unmet needs in North Carolina and pursue public investment over tax cuts that benefit the rich at the expense of everyone else.

NC Budget and Tax Center

Federal spending matters to North Carolina’s bottom line

Governor McCrory and legislative leaders have failed to acknowledge the critical role that federal investments play in North Carolina, as shown in their shortsighted response to the letter from the U.S. Department of Justice that notified the state that repeal of House Bill 2 was required to keep the state in compliance with the U.S. Civil Rights Act.

For years, policymakers in North Carolina have refused to acknowledge the role that federal dollars play in building a stronger economy for our state, whether it be in the demonstrated stabilization delivered by the Recovery Act or the support that could have been received from Medicaid expansion to rural communities and health care providers.

The willingness to defy the federal government so that the state can continue to discriminate puts at risk billions of dollars.

A recent analysis from the Williams Institute suggests that number would top $5 billion. Those are dollars that help to ensure hungry children have access to nutritious food, that children can receive a good education regardless of the wealth of their community, that housing can be kept to code and accessible to seniors and people with disabilities, and that higher education can be accessible to more North Carolinians.

By jeopardizing federal funding, North Carolina policymakers are once again creating their own self-made fiscal crisis. A few facts on federal funding to North Carolina from Pew Charitable Trust’s Fiscal Federalism Initiative:

• In 2014, the last year for which data is available, North Carolina received $16.6 billion in federal grants ranging from funding that went to transportation, health care, housing and education.

PEW_Funding_from_Federal_Grants_Varies_as_a_Share_of_State_Budgets_v1 ffi-1

• These federal grant dollars alone represented 3.5 percent of the state’s GDP, with total federal dollars flowing to North Carolina representing one-fifth of the state’s GDP in 2014.

PEW_Funding_from_Federal_Grants_Varies_as_a_Share_of_State_Budgets_v1 ffi-2

North Carolina has already experienced the loss of federal funding through sequestration—a decision made by Congress—that has resulted in cuts to child care subsidies and housing investments. A self-imposed reduction to federal investments is fiscally irresponsible in light of the already long list of unmet needs in the state and the very poor fiscal responsibility adopted by our leaders with their commitment to tax cuts for the wealthy and profitable companies.

Perhaps this is a good time to remind policymakers in Raleigh that North Carolina benefits tremendously from the investments that the federal government makes in our state’s communities and the well-being of our residents from infants to seniors. To put at risk those dollars so that the state can discriminate will only drive up the costs for us all in the immediate and long-term.

2017 Fiscal Year State Budget, NC Budget and Tax Center

North Carolina deserves better

Just two weeks into the legislative session, North Carolinians already are seeing how limited policymakers’ aspirations are for the future of communities and families.

First, the Governor proposed a state budget that fell far short of what North Carolina needs to have thriving communities and broad prosperity.

Then, yesterday, leaders of the House and Senate agreed on setting their sights even lower.

As if the limitations forced by tax cuts that mostly benefit the wealthy weren’t enough, legislative leaders went a step farther in the wrong direction by tying their spending targets to a flawed formula that replaces judgment with rigid numbers.

In deciding that what the state spends in a year can’t increase by more than the percentage growth in population and inflation, legislative leaders set a target at a little over $22 billion – less than the governor’s.

Such a formula is similar to one that has been severely reducing the quality of life in Colorado. A report from Colorado just this weekend found this inflexible policy is seriously diminishing educational opportunity. Students are trying to learn with outdated technology, and schools are having a hard time attracting or keeping the best teachers. The state’s ability to compete in the global economy can only suffer as a result. Read more

2017 Fiscal Year State Budget, NC Budget and Tax Center

The Governor’s priorities

“Don’t tell me what you value, show me your budget and I will tell you what you value.” –Vice President Joe Biden

Governor McCrory made his vision for our state clear when he announced a summary of his budget two weeks ago, saying that his proposal followed the highest priorities he has for the state’s economic success and delivery of a high quality of life to all.  Unfortunately, however, the priorities in the Governor’s proposal are wholly out of sync with North Carolinians’ priorities for a stronger more inclusive economy, as well as unlikely to deliver the outcomes he desires.

The Governor’s clearest priority places deep tax cuts for wealthy and profitable corporations above important investments that could help build an economy that works for all. His decision to allow corporate income tax rate cuts to phase in over the next two years and personal income tax rates to drop to 5.499 percent  means the loss of at least $786 million in 2017 for the state. Since 2013, the tax changes add up to nearly $2 billion, despite the evidence that such tax cuts for the wealthy and profitable corporations do little to grow the economy and do exact a huge cost in our effort to build thriving communities.

The Governor’s budget proposal has several other examples of how his priorities do not match the priorities of a strong, thriving North Carolina: Read more