NC Budget and Tax Center

Statement on Governor’s released budget proposal from Alexandra Sirota, Director of the Budget and Tax Center

Now with the Governor’s budget proposal released, it is clear that unanticipated revenues available due to a recovering national economy and the lower than anticipated costs in Medicaid are allowing the  Governor to pursue small, targeted investments to promote child well-being and support improved educational outcomes.

These additional investments represent a small fraction of what is needed to realize Governor McCrory’s principles of preparing for future growth and helping those who are struggling in today’s economy.

It is certainly unclear how the Governor will sustain any new public investments with the already scheduled phase-in of additional cuts to the personal and corporate income tax and the heavy reliance on Medicaid “savings” as a primary source of dollars.

The Governor is limited by the costly income tax cuts implemented since 2013 that primarily benefit wealthy and profitable corporations, which result in at least $1 billion less in revenue each year than what would otherwise have been available to build the solid foundation that North Carolina needs to ensure the economy works for everyone.

This makes it impossible to build into the budget much-needed pay increases for all teachers and state employees and make the smart investments that will support a high quality of life and allow North Carolina to compete. Specifically, the tax cuts force bad choices like providing bonuses versus salary raises, selecting only certain public employees and not everyone to receive a pay raise that will also boost local economies, leaving certain waiting lists unaddressed and keeping in place many of the tuition increases and fee increases that have been implemented over the years.

It is, however, very important that the Governor has chosen to seek even this modest reinvestment over more tax cuts that would primarily benefit profitable corporations and the wealthy, shift the tax load  onto middle- and low-income taxpayers and only further distance North Carolina from achieving our potential.

The General Assembly should choose reinvestment over tax cuts for the wealthy or arbitrary spending targets as well and commit to building an economy that works for everyone.

NC Budget and Tax Center

Statement on Governor’s Budget Announcement from Alexandra Sirota, Director of the Budget & Tax Center

If the Governor follows through with the modest additional investments in his budget announcement today, it will represent a pragmatic, yet still constrained, approach to the state’s need for public investments.  With the unanticipated revenues that are available due to a recovering national economy, the Governor is seeking to make smart investments in key areas to promote child well-being and support improved educational outcomes.  But this additional investment represents a small fraction of what is needed to realize his principles of preparing for future growth and helping those who are struggling in today’s economy.

Without the budget proposal fully available for analysis, it is difficult to say whether these new investments highlighted come at the cost of other critical areas. Certainly, it is unclear how the Governor will seek to sustain any new public investments with the already scheduled phase-in of additional cuts to the personal and corporate income tax and the needed servicing of the Connect NC bond.

Even without the full budget proposal, we know that the Governor is limited by the costly income tax cuts implemented since 2013 that primarily benefit wealthy and profitable corporations. These cuts result in at least $1 billion less in revenue each year than what would otherwise have been available to build a solid foundation for a North Carolina economy that works for everyone.

We therefore question whether the state will be able to realize the full benefits of these public investments while policymakers allow tax cuts to continue that primarily benefit the wealthy and profitable corporations.

It also remains to be seen whether the Governor can deliver on even the few small promises made in today’s announcement.  We hope that the General Assembly will choose reinvestment over harmful tax cuts or arbitrary spending formulas and commit to building an economy that works for everyone.

NC Budget and Tax Center

ICYMI North Carolina ranks high for states with declining middle class

Last week, USA Today highlighted new analysis of Census data identifying where the middle class is dying across the country due to the failure of wages to grow for this group.  The analysis looks at income earned before taxes of those households in the third quintile, the middle 20 percent of earners in each state.

North Carolina ranked 4th among states for its decline in income for those in the middle of the distribution. From the analysis:

The highest earning 20% of North Carolina households have an average income of more than $166,000, up 3.3% since 2010. Meanwhile, the income of a typical middle class North Carolina household fell by 1.8%, more than twice the comparable national income decline of 0.7%.

As the story makes clear, the challenge for the broader economy of such declines in income for the middle class is real since consumption comprises a significant component of growth as measured by GDP.  To read more, check out the original analysis here.

NC Budget and Tax Center

Focus on wages to ensure the future of work works for all North Carolinians

The Institute for Emerging Issues wrapped up its forum on the future of work yesterday. The forum brings together leaders from across the state each year to discuss issues of importance to the well-being of the state. This year the topic was the future of work– the ways in which automation and technology are changing how we work and the relationship between workers, employers, consumers and communities.

Despite the projections and well-intentioned guesses about what the future will bring, no one knows for sure what the outcome will be.  What we do know is what we do today can support better economic outcomes for more families, businesses and communities in the state.  Research is clear that wage growth and public policy will be key to ensuring that the future of work has the number and quality of jobs that can boost the economy for everyone.

If this sounds familiar, it should. North Carolina’s wage problem is front and center in the daily lives of workers and the communities where they live today.  Without wages that ensure workers can provide for the basics and spend locally, employers struggle to see the demand for goods and services that allow them to expand and communities are challenged to support the opportunities that build the long-term potential for children’s economic success as adults.  North Carolina’s uneven recovery and elevated hardship today are indicators of what happens when policy doesn’t focus on wages or the ways in which all communities can connect to economic opportunity.

On the first day, a panel of policymakers, Senator Chad Barefoot and Speaker Tim Moore, were joined by Rick Glazier with the North Carolina Justice Center and John Hood with the John Locke Foundation to discuss just where policy can ensure that the future of work delivers greater opportunity and shared prosperity.

John Hood highlighted the critical goal of ensuring that workers have the “capital” to meet their needs and make investments that support advancement of themselves, their families and build assets in their community.  This is indeed the goal and a broadly shared one that is the concern of the vast majority of North Carolinians. A workers’ ability to make ends meet and spend is what the economy needs to function well and expand.  That is why a focus on boosting wages and what communities need to do so, not on reducing the size of government, is needed.

The solutions are readily available to North Carolina policymakers today. They are proven ones that will strengthen the economy for the future. To grow wages, North Carolina must: Read more

NC Budget and Tax Center

Supporting Home-Grown Entrepreneurs A Better Job Creation Approach

Supporting homegrown startups and young, fast-growing in-state companies is likely to be a more effective strategy for states to create jobs and build a strong economy than across-the-board tax cuts and other attempts to lure businesses from elsewhere that many states pursue today.

A new report released by the Center on Budget and Policy Priorities titled “State Job Creation Strategies Often Off Base highlights findings from new research showing that the vast majority of jobs are created by businesses that start up or are already present in a state. The report’s authors conclude that “many state policymakers pursue economic development strategies that are bound to fail because they ignore these fundamental realities about job creation.”

When states pursue tax cuts, they divert resources needed to help home-grown startups and young, fast-growing companies deliver maximum job growth and to build a climate that supports their growth.

Never has the cost of tax cuts to job creation been clearer than in North Carolina where state leaders’ pursuit of income tax cuts has reduced dollars targeted to help entrepreneurs in North Carolina build out their ideas and grow their enterprises. State support for community development finance institutions that support small business development in underserved communities has declined, direct investments in main street revitalization in small towns and cities, and rural economic development and infrastructure have also been significantly restricted in recent years. Meanwhile, North Carolina has failed to pursue many of the best practices in other states that take the best research and development to scale, promote innovative community economic development planning locally through targetted grants or most basically to sufficiently support the best business ideas in local communities that can achieve more inclusive economies. At the same time, public investments that are the foundation of a quality life—investments in good quality schools, parks and recreation—have eroded in our state putting at risk key foundations of entrepreneurship and innovation.

This new research in the report uses improved data to better inform our understanding of which businesses create jobs, and where they create them – calling into serious question the value of large-scale tax cuts and the various other tax breaks states typically offer businesses to move. Among the facts that counter ineffective tax-cut strategies:

  • About 87 percent of private-sector job creation from 1995 to 2013 in the median state was “home grown.” The job creation came from startups, the expansion of employment at existing establishments, and the creation of new in-state locations by businesses already headquartered in the state.
  • Large income tax cuts that a number of states have enacted or are proposing are especially poorly suited to helping startups and other rapidly growing firms, in part because these businesses often have little income in their early years.
  • The most commonly cited reason among entrepreneurs for starting their companies where they did was that it was where they lived at the time. Eighty percent of these entrepreneurs lived in the city where they started their companies for at least two years prior to starting their business. A survey by Endeavor Insight consulting firm concluded that founders of fast-growing companies decide where to live based on personal connections, the talent of the local workforce, and quality-of-life factors. Only five percent of these successful entrepreneurs even mentioned taxes as a reason why they founded their companies where they did.
  • To promote and assist job-generating entrepreneurship, states would be wise to invest in schools and colleges, improving workers’ skills, and maintaining communities that are attractive to residents who want to start a business. Successful entrepreneurs report these factors were key to where they founded their companies.

Bottom-line: Homegrown startups and fast-growing firms already in the state are much more important sources of job creation. Public investments that help build a skilled workforce and improve the quality of life for local residents are better bets for supporting real economic progress.