North Carolina’s revenue forecast signals meager growth and murky economic outlook

February 21, 2013 at 9:48 amCategory:NC Budget and Tax Center

by

Earlier this month, North Carolina legislators began the months-long process of developing the two-year state budget that covers July 1, 2013 through June 30, 2015. To kick-off this endeavor, non-partisan staffers have been providing members with an overview of current fiscal conditions as well as past legislative budget actions. Perhaps the most important presentation to date centered on the revenue forecast, which sets the stage for legislators to begin building the next state budget.

Projections from the non-partisan Fiscal Research Division indicate that General Fund revenue collections are on target as of the end of December for FY2012-13. North Carolina’s economy has made improvements over the last fiscal year but continues to lag behind the nation across several economic indicators. And although the state does not face an imminent budget crisis—largely due to a tremendously diminished baseline—the forecast implies that we are not completely out of the woods. Read More…

Legislators poised to reduce NC Earned Income Tax Credit despite its powerful anti-poverty impact

February 19, 2013 at 1:47 pmCategory:NC Budget and Tax Center

by

This afternoon, legislators serving in the NC House are scheduled to approve HB 82, a bill that would reduce the state Earned Income Tax Credit (EITC) from 5 percent to 4.5 percent of the federal credit for tax year 2013. Worse yet, legislators have already stated that they will not extend this important tax credit beyond its sunset date at the end of the year. Doing so would shift the tax load to the state’s lowest-earning families and could push more North Carolinians into poverty, according to a new report released today by the NC Budget and Tax Center.

North Carolina’s tax system does little to help low-earning workers and their children who are living on the margins; it actually makes it harder for them to meet basic needs. Even with the state EITC—which provides workers earning low wages with a credit to offset their total state and local tax contributions—moderate- and low-income working families still pay a greater share of their income in state and local taxes compared to the upper-middle class and wealthy. As policymakers consider changes to the state’s tax code this legislative session, it is critical to maintain this important tax-equity tool. Read More…

Don’t be misled: Boosting sales tax would hurt low- and middle-income families

February 12, 2013 at 2:01 pmCategory:NC Budget and Tax Center

by

Advocates of a state tax overhaul are doing their level best to distract attention from the central truth that the plan would raise taxes on North Carolinians earning less than $51,000 a year and hand a significant tax cut to the top 20 percent.

The authors of a Civitas Institute report—which advocates abolishing the state personal income tax and replacing most of the lost revenue with a higher sales tax on a wider variety of goods and services—acknowledge that low- and middle-income households would pay more since they spend more of their income on products subject to sales taxes than wealthier households do. But they claim that this concern is overblown. They use several arguments to justify the tax shift, none of which stand up to scrutiny.

One of their central assertions is that some low-income people get government benefits, which apparently means that people living in poverty can afford to pay for a tax cut for the rich. We doubt most people in North Carolina agree. The proponents of a higher sales tax greatly exaggerate the government benefits most poor people in North Carolina actually receive. To bolster their case, they cite services available to families in Pennsylvania and appear to assume that every household eligible gets all of the services. But this is simply not the case in North Carolina. The vast majority of poor people do not receive all the services they are eligible for, in part because there are not enough funds to allow that. Read More…

Economist says Civitas/Laffer/Senate tax plan targets seniors’ “purses and wallets”

January 24, 2013 at 9:28 amCategory:NC Budget and Tax Center

by

Legislative leaders are seeking to further reduce and eliminate North Carolina’s personal income tax, despite the fact that such a plan would make the state’s tax system more regressive by shifting the tax load onto those least able to afford it. Broadly speaking, this tax shift would have huge implications for North Carolina’s low- and middle-income residents, as a new NC Budget and Tax Center report shows.

But as Dave Ribar, an economist at UNCG, points out in his blog Applied Rationality, older adults would be disproportionately impacted by the Civitas/Laffer/Senate plan that calls for elimination of the state’s personal income tax.

Tax policies that benefit older adults by reducing the taxes that they pay—such as the exemption of social security income, partial exemption of pension income, and higher standard deduction—would go away with the elimination of the state personal income tax. Spending patterns are also unique for the average retiree, argues Ribar. An increased reliance on the regressive sales tax would hit retirees harder because they spend a greater share of their retirement income on consumption items—particularly items such as food and prescriptions that would be newly taxed at the state level under this plan. Read More…

Busting Tax Myths: Personal income tax no more volatile than other major state taxes

January 16, 2013 at 5:29 pmCategory:NC Budget and Tax Center

by

North Carolina policymakers have pledged to make revenue modernization a legislative priority in 2013. Earlier today at a press conference, North Carolina Senate President Phil Berger indicated that there will indeed be a revenue reform package. At this point, it is not entirely clear which specific policy decisions and principles will guide the leglative leadership’s revenue plan.

With that said, Senator Rucho, the Co-Chair of the Senate Finance Committee, is touring the state and pitching a proposal that would eliminate the state’s personal and corporate income taxes. One of the arguments used in support of this proposal is that sales tax revenue is less volatile than personal income tax revenue. This is one of many persistent tax myths, however. And if this tax myth is used to guide policy decisions, the result could be even more problems with North Carolina’s tax code.

For sure, sales tax revenues are volatile in the face of economic downturns. This is especially true when the sales tax fails to include services. While Senator Rucho and others have claimed that the sales tax can deliver greater stability than other revenue sources, it is important to note that research demonstrates that the personal income tax is no more volatile than the sales tax in the long-term. Read More…