2018 Fiscal Year State Budget, NC Budget and Tax Center

Troubling signals from the NC Senate on budget priorities

The Senate is set to release this afternoon its proposed budget for how it envisions funding public investments over the next two fiscal years.

More tax cuts that largely benefit the wealthy and profitable corporations will likely be included in the Senate’s budget. The Senate has already put forth a tax plan that will cost $323 million for the upcoming fiscal year 2018, with the annual cost growing to $840 million within five years. The damage of the tax cuts is clear – state officials estimate that the Senate’s tax plan would create a $600 million budget hole within three years.

These choices stand in stark contrast to the priorities of North Carolinians. Take the issue of class size: Parents, teachers and students all want smaller class sizes, but adequate funding is needed to make that happen because state commitments to the classroom continue to fall short in nearly every area.  State lawmakers mandated class size reductions in K-3 classrooms but failed to provide the $338 million needed to meet this requirement. To be clear, North Carolina currently has the funds to ensure that students in lower grades are not in overcrowded classrooms. But the Senate is pushing for more income tax cuts for the wealthy and profitable corporations that will cost $323 million for the upcoming fiscal year. Without these costly tax cuts, North Carolina would have resources to fund the cost of reducing class sizing in our public schools.

The state budget is a reflection of our priorities and values as a state – we invest in things we actually care about and that we know generate positive outcomes for us all in the form of a stronger economy and increased well-being. The Senate’s priorities are not aligned with a vision for our state that delivers shared prosperity and opportunity to all.  Let’s hope they get on track.

NC Budget and Tax Center

Boosting investment in early childhood development, a no-brainer for NC

Early childhood development programs are not typically viewed as economic development initiatives, but they should be. Extensive research in this area finds that well-focused investments in early childhood development yield positive long-term public and private benefits. Furthermore, the return on early childhood development investments to the public far exceeds the return on most other economic development projects.

North Carolina has not done enough to ensure that access to quality early childhood development programs reach more children. The state dedicates just 1.1 percent of its General Fund budget to early childhood education.

Digging deeper, nearly 5,500 fewer Pre-K slots are available today than there were in 2009. This eroding state support contributes to the more than 7,200 children that were on the Pre-K waiting list last year. With an estimated 67,000 children eligible to participate in the Pre-K program, less than half are being served due to inadequate state funding. These are unfortunate realities for North Carolina despite studies showing that high-quality preschool can increase a child’s performance in the early school grades, boost high school graduation rates, improve chances of landing a job later in life and reduce criminal behavior, among other benefits. Read more

NC Budget and Tax Center

It’s official: Senate tax plan blows a serious hole in state budget

An article in today’s N&O highlights some important and sobering facts regarding the costly tax plan proposed by the state Senate. Most notably, the article points out that the NCGA’s Fiscal Research Division estimates that the Senate tax plan would create a hole in the state budget to the tune of nearly $600 million within the next three years.

Plugging this budget gap will likely mean state funding cuts to public schools, healthcare services, environmental protection and/or other areas of the state budget needed to pay for the tax cuts. Regarding the budget hole that the tax plan will create, Senator Jerry Tillman – a co-sponsor of the Senate tax plan and co-chair of the Senate Finance committee – is quoted in the N&O article as informing the public that “there are budget areas that can be cut as well as reserves that could be tapped.” Thus, cutting important public services to pay for more tax cuts is not a far-fetched idea, but rather a planned go-to option for proponents of the tax plan.

BTC’s analysis of the Senate tax plan shows that the tax cuts are not in fact targeted to middle class tax payers. Nearly half of the total net tax cut under the proposed tax plan would go to the top 20 percent of income earners in the state. By contrast, only 29 percent of net tax cut benefits would flow to the bottom 60 percent of income earners – those with incomes of $57,000 or less. Furthermore, a significant share of the net tax benefit will flow to profitable multistate corporations.

The N&O article makes  it very clear: Proponents of the Senate tax plan are more than willing to give more tax cuts to the already well-off and profitable corporations at the expense of public investments that promote broadly shared prosperity. This is state leaders’ brand of tax reform, which doesn’t look like it ends well for the majority of North Carolinians.

NC Budget and Tax Center

New analysis: Most of NC senate’s “middle class” tax cut would actually flow to the wealthy

Last week, the North Carolina Senate Finance Committee approved Senate Bill 325 – sponsored by the chairs of the committee – that supposedly cuts taxes by nearly $1 billion. Proponents of the bill claim that the tax cuts are targeted to middle-income taxpayers, but this is not the case. The majority of the net benefits for the tax cuts will go to the highest income earners in the state. Simply put, this bill is not a billion dollar middle class tax cut, despite the title of the bill. This is a false claim that becomes apparent upon a deeper analysis of the bill.

For starters, the billion dollar tax cut claim touted by proponents is nearly 20 percent off the mark. The General Assembly’s Fiscal Research Division (FRD) highlights that the annual cost of the tax plan grows to be around $839 million over the initial five years. Moreover, tax cuts for businesses account for 20 percent of that total cost estimate. While one might chop this up to a simple rounding approximation, the magnitude of this rounding up on something of such importance would likely garner some form of reprimand in the business and finance world in which billion dollar deals require a more precise understanding of the numbers.

During last week’s meeting, bill sponsors and FRD staff were unable, and at times unwilling, to answer critical questions related to the tax plan. Limitations to the analytical software used by FRD were noted, which limited staff’s ability to answer key questions about who benefits and the cumulative losses of tax cuts over the years.

The limited analysis produced by FRD allows proponents of SB 325 to falsely proclaim that the tax plan largely benefits middle income taxpayers. Typically, FRD arbitrarily selects income levels and often deploys just taxpayer scenarios to highlight the impact of proposed tax changes. This approach doesn’t allow policymakers or the public to understand the population-wide effects and the distribution across all taxpayers.

BTC’s analysis of SB 325 uses a more robust model developed by the Institute on Taxation and Economic Policy (ITEP), a non-profit, non-partisan organization. ITEP’s microsimulation tax model calculates tax revenue yield and incidence, by income group, of federal, state and local taxes. The model is used in states across the country to analyze state tax proposals and to assess the impact of tax policies on issues of public concern. ITEP’s model segments North Carolina taxpayers into five equally split income groups based on actual tax returns and total estimated incomes (and breaks down the top 20 percent of taxpayers since income is so concentrated at the top of the spectrum). FRD informing lawmakers that a hypothetical taxpayer with adjusted gross income of $200,000 would get a tax cut under the plan provides no insight into the distributional impact of the tax plan, such as where that taxpayer falls along the income spectrum (certainly not in the middle). The ITEP model, however, highlights that this hypothetical taxpayer is closer to the top 10 percent of income earners in the state. Read more

2018 Fiscal Year State Budget, NC Budget and Tax Center

Governor’s Justice & Public Safety budget invests in safe and healthy communities

The Governor’s proposed Justice & Public Safety budget for fiscal year 2018 includes $161 million, a 6.2 percent increase, in additional state funding compared to the current fiscal year budget. The majority of the additional funds are for pay raises for state employees along with other targeted investments, particularly in the area of public safety.

Here are notable spending priorities in the Governor’s budget. Read more