NC Budget and Tax Center

Costly tax cuts drain resources for investments in NC’s education pipeline

A report released today by Budget & Tax Center highlights that state support for early childhood development, public schools, and public colleges and universities remains below investment levels prior to the Great Recession. This trend will persist under the current budget passed by state lawmakers that North Carolinians must live through until July of 2017. The annual cost of tax cuts in 2015 balloons to over $1 billion each year within four years, and comes on top of costly tax cuts passed by state lawmakers in 2013.

Ensuring high-quality learning and education opportunities for all North Carolina children and students remains a challenge as the student population grows and best practices in the classroom evolve. The BTC report highlights areas of inadequate investment in North Carolina’s education pipeline.

  • State funding for NC Pre-K is 15 percent lower when adjusted for inflation than the 2009 budget year, when funding and the number of children served peaked. This year, more than 6,400 fewer state-funded slots are available in NC Pre-K than in 2009 despite more than 7,200 children being on NC Pre-K wait lists last year.
  • State support for the Smart Start program, which promotes school readiness for North Carolina children from birth to age five, is nearly 40 percent below 2009 when adjusted for inflation.
  • State funding per-pupil for public K-12 schools is nearly 9 percent below its 2008 pre-recession funding level when adjusted for inflation.
  • Compared to peak funding in the 2008 budget year, state support per student at four-year public universities this year is down nearly 16 percent while tuition have increased significantly during this time period.
  • Tuition at community colleges has increased by 81 percent since 2009.

The report highlights other areas of diminished and lagging support for public education – the decline in state funding for classroom textbooks, for example – and how state lawmakers shifted existing state dollars from one area to another to make state support for public education appear more generous than in reality.

Public investments in early childhood development, quality public schools, and affordable higher education are essential building blocks of long-term economic growth and shared prosperity. Yet amid an uneven and slow economic recovery, state policymakers chose to deliver greater benefits to the wealthiest few rather than boosting investments in its education pipeline to ensure access to opportunity for all North Carolina children and students, the report notes.

NC Budget and Tax Center

Looking beyond the surface regarding news that revenue is up in NC

Revenue is up in North Carolina—which is no surprise because the national and state economies are growing. But before jumping to the conclusion that tax cuts are the reason why, take a look at the numbers. Revenue collections for the first half of this 2016 fiscal year are higher than the same period last fiscal year, a report from the state’s controller’s office highlights. However, when compared to the same period for FY 2013, receipts from the personal income tax are down and receipts from the sales tax, which now applies to more goods and services, are up (see table below). This is the tax shift that state lawmakers put into motion in recent years.

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This tax shift – less reliance on revenue from the income tax and more from the sales tax – is an expressed desire of state leaders. Read more

NC Budget and Tax Center

Hypotheticals continue to trump reality for some state lawmakers

Today the General Assembly’s Revenue Laws Committee held its first meeting for 2016. The meeting’s agenda included presentations to state lawmakers on the committee from state officials regarding tax changes passed last year as well as proposed tax changes that state leaders would like to pass this year. Also included on the agenda was a presentation from a representative of the Tax Foundation (TF), tax policy research organization that favors tax cuts for profitable corporations and the wealthy, and recently released analysis that fails to acknowledge the cost of such an approach to North Carolina’s ability to fund public schools, infrastructure like roads and water/sewer, state parks or public health initiatives.

Here are three takeaways from today’s meeting.

  • Despite the TF spokesman informing that his organization’s assessment of the impact of tax reform in North Carolina uses hypothetical (a.k.a. made up) taxpayer scenarios, some lawmakers still pointed to these scenarios during the meeting to support their claim that the tax changes benefit all North Carolinians. This is not true. The TF spokesman even acknowledged during his presentation that all NC taxpayers do not come out ahead under tax changes since 2013.

Read more

NC Budget and Tax Center

Tax Foundation ranking not a true indicator of North Carolina’s health

You may have heard that North Carolina’s business climate is nearing top-10 status according a new ranking by the Tax Foundation, a tax policy research organization that favors tax cuts. If that sounds strange to you, it should.  Many of the inputs that businesses look to in order to succeed have failed to rebound after the recession because of neglect from state policymakers.

The 2016 State Business Tax Climate Index has many flaws that have been highlighted by critics over the years. It is clear, however, that one way to zip up the ranking is to simply cut taxes, often in ways that primarily benefit large multi-state corporations. And this result in forgoing the kinds of investments needed to improve the economic climate that allows all businesses and all North Carolinians to prosper.

As I’ve noted in a prior post, proclaiming that North Carolina’s business tax climate has leapt from one of the worst to now one of the best largely as a result of tax cuts provides no insight regarding the fiscal and economic health of the state.

Here are five reasons that the Tax Foundation rankings are the wrong foundation for making tax policy in North Carolina.

  1. Ranking focuses on cherry-picked tax policies that the Tax Foundation doesn’t like, rather than on the range of factors that genuinely drive business investment decisions.

The Tax Foundation index simply chooses elements of tax policy it likes best – e.g. a flat income tax rather than a progressive income tax structure – without solid empirical evidence as to the impact of favored tax policies on states’ economic growth. A flat tax income tax, for example, which the Tax Foundation favors, doesn’t take a taxpayer’s ability to pay into account and largely benefits the well-off. A progressive income tax structure, by contrast, considers ability to pay but is not favored in the ranking. Furthermore, states with relatively lower tax rates are favored without considering the impact of lower tax rates on their ability to raise adequate revenue for public services. The Tax Foundation mixes these selected tax policies together and labels the result a state’s “business climate.”

This sole focus on a state’s tax structure leads to an index that mistakenly assumes taxes are the most important factor in shaping states’ business climates and tells us nothing about a state’s economic health – like whether schools are good, higher education is affordable, roads and rails are in good shape, or the workforce has the skills needed for 21st century business. Read more

NC Budget and Tax Center

Tax Foundation gets it wrong with its assessment of recent tax changes in NC

A report by the Tax Foundation, funded by the NC Chamber Foundation, gets it wrong in its assessment of the impact of tax changes made by state lawmakers in recent years. The plethora of charts and figures created by the Tax Foundation fails to detail the important loss of revenue that has hindered the state’s pursuit of important foundation-building for a strong economy—investments in schools, research and development, entrepreneurship and innovation. The assessment also masks the shift in tax responsibility to the majority of North Carolinians and away from the wealthy and profitable corporations.

Proclaiming that the state’s tax climate has leapt from one of the worst to now one of the best largely as a result of tax cuts provides no insight regarding the fiscal and economic health of North Carolina. Just as a good accountant understands that positive business earnings don’t equate to a financially sustainable enterprise, this reality also applies to tax policy and the economy. In fact, the Tax Foundation’s rankings reflect little more than the tax policies they and their corporate funders want to see rather than a robust body of evidence about what economies need to prosper. In fact, the pursuit of low-taxes has not been demonstrated to consistently deliver the economic returns promised.

Below are three notable takeaways from the Tax Foundation’s assessment of tax changes passed by state lawmakers since 2013. Read more