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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NC Budget and Tax Center

I recently noted the differing approaches of President Obama and Congress regarding tax changes, developing a budget and supporting the economy. In particular, I noted Congress’ push to eliminate the federal estate tax – which applies to very large inheritances by a small group of wealthy heirs.

Over the years, the amount of inheritance that is exempt from the federal estate tax has increased exponentially while efforts to raise the minimum wage in line with the growing costs of meeting basic needs have stalled.

In 2001, the federal minimum wage was $5.15 an hour and remained at that level until 2008 when it was increased to $5.85 an hour and then to $7.25 in 2010, where it remains today. On this issue, North Carolina has not differed from federal law, with a state minimum wage of $7.25 as well.

By contrast, in 2001, the amount of estate inheritance that could be exempt from the federal estate tax was $625,000. By 2008, this exemption amount increased to $2 million and for 2015 the exemption amount is $5.43 million. In 2013, North Carolina state lawmakers completely eliminated the state’s estate tax (only 23 North Carolina taxpayers paid an estate tax for the 2012 tax year). In the same year state lawmakers eliminated the state Earned Income Tax Credit, which helped more than 900,000 low- and moderate-income taxpayers who earn low wages keep more of what they earn to offset an already regressive state tax system. Read More

NC Budget and Tax Center

Members of the Kansas Center for Economic Growth are visiting North Carolina this week to share what has happened in Kansas following massive tax cuts signed into law by Governor Brownback back in 2012. Kansas has become a case study of the grave consequences resulting from a dogged pursuit of tax cuts as an economic growth strategy. The results are not that good.

In 2012, Kansas enacted tax cuts that were considered among the largest ever enacted by any state. Tax cut proponents in other states – including North Carolina state lawmakers – held Kansas up as a model to be replicated. Accordingly, North Carolina state lawmakers followed Kansas’ path and passed huge income tax cuts in 2013 that largely benefited the wealthy and profitable corporations and significantly reduced available revenue for public investments.

For Kansas, the reality in the wake of the costly tax cuts has been nothing to write home about. Here are some low-lights of Kansas’ experience, accordingly to the Center on Budget and Policy Priorities.

  • Deep income tax cuts caused large revenue losses. Kansas’ tax cuts last year cost the state more than 10 percent of the revenue it uses to fund schools, health care, and other public services, a hit comparable to a mid-sized recession. The revenue loss is expected to rise to 16 percent in five years if the tax cuts are not reversed.
  • The tax cuts delivered lopsided benefits to the wealthy. Kansas’ tax cuts didn’t benefit everyone. Most of the benefits went to high-income households and taxes were even raised for low-income families to offset a portion of the revenue loss.
  • Kansas’ tax cuts haven’t boosted its economy. Since the tax cuts took effect at the beginning of 2013, Kansas has added jobs at a pace modestly slower than the country as a whole. Furthermore, the earnings and incomes of Kansans have performed slightly worse than the U.S. as a whole as well while the number of registered business grew more slowly in 2013 than in 2012.

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