NC Budget and Tax Center

With lawmakers set to hammer out a final state budget, North Carolinians are hearing a lot of misleading claims about the inability to afford important investments in the state’s economic future. Unmentioned is that the state’s constrained finances – at a time when the economy is improving – stem from the decision to sharply cut taxes over the past three years instead of building a strong foundation for lasting growth.

So when policymakers say that making investments in one area of the budget limit the ability to invest in other areas, they are right in lamenting limited resources. But they are offering false choices because they leave out the fact that the limits on resources available to help North Carolinians build a secure future come from House and Senate leadership prioritizing tax cuts over investments that drive the economy forward. And these constraints are likely to continue far into the future because the proposed House and Senate budgets include tax cuts that cost anywhere from $650 million to $1 billion over the next two years, depending on which version of the budget the two houses eventually agree to enact.

By locking themselves into these false choices legislators fail to acknowledge that halting further tax cuts would help ensure that schools have the resources they need and that important supports are available to promote healthy and safe communities.

Let’s sort out some of these false choices and shed light on how different it could be if the state had taken the common-sense path of avoiding such damaging tax cuts.

  • Classroom Teachers vs. Teachers Assistants. Today, our schools have nearly 4,800 fewer classroom teacher positions and more than 7,000 fewer state-funded teachers’ assistants than in 2009, which is especially bad considering there are 43,000 more students in our schools. The Senate budget drastically reduces funding for teachers’ assistants and provides some additional funding for classroom teachers. But neither the House nor Senate budget would restore the number of teachers and assistants to the 2009 level. Without tax cuts, North Carolina could invest in teachers and teachers’ assistants, providing the next generation a better shot at getting the skills to compete in a global economy.

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Falling Behind in NC, NC Budget and Tax Center, Raising the Bar 2015

A tax plan state Senate leaders presented this week would promote neither shared economic opportunity nor prosperity across North Carolina. Far from it.

The proposal would cost more than $1 billion in annual revenue loss as the tax plan continues down the path of handing out more costly tax cuts to large, profitable corporations at the expense of everyday North Carolinians. This approach won’t restore the state’s economy to a sound footing.

The proposed tax plan does nothing about persistent stagnant wages, an uneven economic recovery in which all gains are going to the wealthiest North Carolinians, and the lack of economic and job growth in many parts of the state. Senate leaders would pay for only a portion of the income tax cuts by having North Carolinians pay more in sales taxes, which hit people making relatively low incomes the hardest. And the state would continue to walk away from its responsibility to make much-needed investments in our public schools, public colleges and universities, repair the state’s eroding infrastructure, and other building blocks of a strong economy.

Key aspects of the Senate tax plan stand out as strong reasons why its adoption would fail to promote broad prosperity.

  • The proposal’s reduction of the personal income tax rate to 5.5 percent from 5.75 percent has no benefits to the state’s economy or its competitiveness. At the cost of much-needed public revenue, the tax rate cut won’t drive significant job creation, motivate businesses or people to locate in North Carolina or encourage local investment. Not only do income tax rates affect these factors negligibly, if at all, North Carolina’s personal income tax rate is already in line with the region’s, falling in the middle among southeast states.
  • While putting a limit on how much in itemized deductions a taxpayer can claim is good policy, using the added revenue this produces to reduce tax rates isn’t. Because this proposal would place all itemized deductions—mortgage interest, charitable contributions, medical expenses, etc.—under the cap, it creates greater equity in the treatment of taxpayers. Capping itemized deductions reduces revenue loss from these deductions and helps address inequities in the tax code, as wealthier taxpayers typically benefit more from deductions.
  • Increasing the standard deduction is a wasteful way to address the problem of too many North Carolinians struggling to make ends meet because it deprives the state of much-needed public resources that could boost public investments that promote economic growth. A better way to help hard-working taxpayers keep more of what they earn is to adopt a strong refundable state EITC to help offset not only income taxes, but sales and property taxes that fall hardest on those with lower incomes.

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NC Budget and Tax Center

The budget passed by House members last week makes clear that North Carolina remains hampered by costly decisions made in recent years. Despite modest improvements in some areas of the budget, important public investments that drive the state forward remain well below pre-recession spending levels. The House budget is a reflection of choices and an example of missed opportunities.

Modest funding increases in the House budget are primarily the result of moving the goal post. For example, fully funding enrollment growth for our public schools and providing teachers and state employees a two-percent pay increase are typical budget practices, particularly in budgets crafted during a recovery.

The budget hikes various fees, increases tuition at community colleges, fails to reinstate the state Earned Income Tax Credit, and resorts to cutting funding from certain programs to fund others (e.g., the House reduced funding for textbooks in order to fund other areas of the public education budget).

Rather than address persistent underinvestment and seize opportunities to support a stronger economy, state lawmakers will allow another round of corporate tax cuts to go into effect – reducing annual revenue by $100 million in the first year, $350 million the second year, and more than $500 million in subsequent years.

Revenue lost just from these additional corporate tax cuts, which state leaders seem unwilling to debate, could provide funding for much-needed public services that strengthen our communities and the state’s economy. Read More

NC Budget and Tax Center

A powerful new initiative aimed at reducing childhood hunger will be available to around 1,200 high-poverty schools in North Carolina this upcoming school year. This initiative, known as community eligibility, allows qualifying schools to serve meals free of charge to all students, ensuring that children whose families are struggling to put food on the table have access to healthy meals at school.

Last year, North Carolina got off to a good start with nearly 650 schools using community eligibility to feed more than 310,000 kids. This upcoming school year, hundreds more schools are eligible to participate.

Results show that more NC children are eating school meals because of community eligibility, with a particular increase in the number of children eating breakfast. This means that more children are fueled up and ready to learn at school each day.

When children arrive at school hungry, it is very difficult for them to concentrate and do well in the classroom. By providing schools meals to all of our children free of charge, we are both reducing hunger and increasing their chances of student success. Read More

NC Budget and Tax Center

The lesson this week in North Carolina is that when you dramatically lower expectations, you are bound to exceed them. Behind these low expectations is a state setting itself up for more cuts to things like schools and a slowed economic recovery.

When North Carolina’s revenue this month came in a bit higher than the low expectations the state set due to the 2013 tax cuts, it signaled that more tax cuts for profitable corporations are on the horizon. Triggers for these corporate tax cuts were included in the tax plan passed by state lawmakers in 2013, which stipulated that the tax rate would automatically drop if total revenue collections reached certain arbitrarily-selected thresholds.

State policymakers set a low bar of performance for the corporate tax rate reductions to kick in, and based on the revised consensus revenue forecast released last week, the revenue thresholds are expected to be reached. As a result, the corporate tax rate is expected to fall to 3 percent from 5 percent by 2017, reducing annual revenue by $100 million in the first year, $350 million the second year, and then by more than $500 million annually going forward.

Prior to passage of the 2013 tax plan, North Carolina’s tax system was projected to raise around $21.4 billion and $22.3 billion for FY 2015 and FY 2016, respectively. Under the 2013 tax plan, state lawmakers set revenue thresholds of $20.2 billion and $20.975 billion for FY 2015 and FY 2016, respectively. These thresholds are BELOW what would have been collected under prior law, thus providing plenty of room to lose revenue and still meet the thresholds.

In short, state lawmakers lowered the revenue performance bar and are now celebrating that the bar was surpassed.

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