NC Budget and Tax Center

Tax refunds from revenue “surplus” indicate the rich are getting richer

North Carolina House and Senate leaders continue to consider a flawed proposal that would send more than 600 million tax dollars from revenue over projections to some taxpayers.

Analysis from the Fiscal Research Division and the Office of State Budget and Management reveals that the revenue over projections is primarily the result of income from non-withholding sources such as capital gains, business income, and dividends — sources of income that are almost exclusively held by North Carolina’s wealthiest residents.

These additional dollars are not the result of the state collecting more taxes than should have been collected — they are the result of the rich getting richer.

In North Carolina, 66 percent of all capital gains income is held by taxpayers in the top 1 percent; as such, with revenue over projections largely tied to capital gains and dividends, this means that the revenue over projections are largely due to the rich getting richer.

New analysis from the Institute of Taxation and Economic Policy finds that under the proposed Taxpayer Refund Act, the top 20 percent of NC taxpayers would receive 34 percent of the tax refunds, while the bottom 80 percent of NC taxpayers would receive only 66 percent of the tax refunds.

Research from the Economic Policy Institute shows that in North Carolina, the difference in income is growing and the economy is not working well for everyone.

  • The top 1 percent make 20.6 times more than the bottom 99 percent.
  • The top 1 percent take home 17.2 percent of all the income
  • The average income of the top 1 percent is $902,972.
  • The average income of the bottom 99 percent is $43,850.
  • The share of all income held by the top 1 percent in recent years has approached or surpassed historical highs.

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NC Budget and Tax Center

New analysis: A third of NC taxpayers won’t benefit from proposed tax refund plan

Proposal would also undermine preparations for next recession

North Carolina Senate and House leaders are moving forward with a flawed proposal to spend the majority of the state’s revenue over collections, more than $600 million, to issue tax refund checks of $125 per taxpayer ($250 for married couples).

Such a proposal undercuts the potential to address pressing needs in communities like school construction, hurricane rebuilding, shoring up the state’s Rainy Day Fund, and one-time investments that can improve the quality of life for children and families through quality education and health care.

It also flies in the face of prudent budgeting in the face of increasing concerns that the country and North Carolina could experience a recession in the near-term. Setting aside one-time money to minimize the potential hit to state revenues from a downturn is fiscally responsible.

Sending tax refunds to individuals won’t deliver the same economic boost as building schools or fixing our water infrastructure primarily because it won’t benefit those who need it most and are most likely to spend it. By design, the proposal is limited to tax returns that had positive income tax liability in 2018. That means that many taxpayers whose income is low or who receive various tax credits won’t receive a refund check.

New analysis from the Institute of Taxation and Economic Policy finds that 32 percent of taxpayers will not receive a tax refund check despite the fact that all North Carolinians pay state and local taxes each year.

Here’s why:

Some North Carolina taxpayers earn too little to file income taxes. Yet all North Carolinians pay sales and excise taxes. Low and middle income taxpayers pay a greater share of their annual income in sales and excise tax to our collective effort to strengthen community well-being.  The current tax refund proposal doesn’t account for the total tax load carried by North Carolina taxpayers.

Many taxpayers don’t have income tax liability due to the state’s high standard deduction. Overtime, the standard deduction—the amount of income you can earn before you have to start paying taxes—has been increased by policymakers. Increases in the standard deduction means that fewer people have income tax liability thus making fewer NC taxpayers eligible for the tax refund.

New analysis from the Institute on Taxation and Economic Policy finds that North Carolina taxpayers most in need of an income boost and those most likely to spend their refund are less likely to receive one. A full 70 percent of taxpayers in the bottom 40 percent of the distribution, those whose average income is below $36,000, will not receive a tax refund. At the same time, the top 20 percent of taxpayers receive 34 percent of the tax refunds.

It is time for a more serious conversation about our fiscal decisions and a return to the process of finalizing a budget that considers the full range of needs now and in the future.

Martine Aureline contributed to this post.

NC Budget and Tax Center

The N.C. budget stalemate, explained in GIFs

Earlier this summer, NC lawmakers passed a $24 billion conference budget that missed a number of opportunities to provide basic services and improve the lives of everyday North Carolinians. Within 24 hours, Governor Cooper vetoed the budget, calling it a “failure of common sense and common decency.”

On July 1, the Fiscal Year began and we didn’t have a budget.

No budget??!! While you might be confused about how we’re still running as a state, it’s because there’s a statute that keeps public programs funded at prior year levels.

This means that enrollment growth for schools and health care isn’t funded, pay raises and increases in retirement contributions for teachers and state employers aren’t provided, and emerging needs aren’t addressed.

A couple weeks after the start of the fiscal year, Governor Cooper released a compromise proposal that keeps nearly every major component of the conference budget — except it also includes a clean Medicaid expansion and eliminates tax cuts to corporations, using that revenue to invest in teachers and schools.

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NC Budget and Tax Center

New state budget and child care: Looking like another missed opportunity

With current conference on the final budget between the House and Senate underway, a new report from the Budget and Tax Center, a project of the NC Justice Center, shows how critical the decisions will be in the coming days for the state’s youngest children.

North Carolina lawmakers last year failed to fully deploy federal dollars to their purposes and removed state commitments to child care subsidy programs, a critical tool in providing quality early childhood learning experiences to young children in low income families.  The result is that we have persistent unmet needs across the state that include: approximately 33,098 eligible children on the waiting list for child care assistance and many more eligible but not receiving child care assistance, the presence of persistent child care deserts, and barriers to enhancing quality through professional development and compensation programs for early childhood workers.

House and Senate proposals for the next two-year budget (FY 2020 and FY 2021) continue to swap federal dollars and fail to commit additional state dollars compared to current services, holding down the state’s overall commitment to keeping child care affordable and accessible.

House and Senate budget writers propose to increase total funding for the child care subsidy program for each year of the biennium budget. However, each budget proposal would reduce state support for these programs and increase federal support compared to the base budget — that is, they would shift toward a greater reliance on federal funding to support this crucial program. They also shift federal dollars further away from Temporary Assistance for Needy Families (TANF) and toward CCDBG again by the end of the biennium.[1]  As explained below, each budget doubles down on supplanting state dollars compared with FY 2019, particularly the Senate budget in year two of the biennium.

More specifically, House and Senate budget proposals for FY 2019-20 do the following: Read more

NC Budget and Tax Center

Landmark bill would strengthen early childhood education in N.C.

Earlier this year, the Budget & Tax Center released a report analyzing the role that public investments in North Carolina’s early childhood workforce could play in supporting our state’s goals of delivering high quality learning experiences to our youngest children. As the 2019-20 legislative session presses on, the early childhood education workforce and its advocates are hopeful that they may see historic legislation passed this session.

Last Friday, the North Carolina House passed House Bill 882, a landmark bill that would strengthen the quality of early childhood education in North Carolina and help ensure early childhood educators can meet their needs and provide quality care.  The bill would make progress toward these goals by focusing on:

  • High Quality Learning – The bill establishes increased educational and professional standards that support high quality learning for students. More specifically, the bill requires lead teachers who are hired as of Jan. 1, 2020, to have the infant Toddler or Preschool Certificate or equivalent by July 1, 2021. Additionally, the Division of Child Development and Early Education (DCDEE) is required to develop expected professional standards and core competencies for lead teachers and create a process for teachers to demonstrate they have achieved these standards.
  • Compensation for Early Childhood Educators – In recognition that infant and toddler educators in North Carolina experience the lowest wages and minimal education requirements, the bill requires DCDEE within the Department of Human Health Services (DHHS) to develop a program that will create incentives for higher teacher education and compensation by providing subsidy incentives for child care programs to employ and pay teachers who have an associate degree or higher by July 1, 2020.
  • Targeted Program for NC’s Youngest Children —DHHS/DCDEE is also required to conduct a Feasibility and Cost Study to create a special Infant and Toddler child care program. The implementation of these programs creates incentives for careers and early education and may help lay the ground work for compensation to be placed within Quality Rating and Improvement System (QRIS) standards.
  • Data and Accountability— State level assessment and monitoring of the early childhood workforce is established through the bill’s requirement for a report on the status of the early childhood workforce every three years.

The Senate now has the to make certain that every infant is safe and developing, every toddler is thriving, and every preschooler is prepared for kindergarten.