NC Budget and Tax Center

U.S. House leadership may force another vote on harmful Farm Bill

This week, it is highly likely that the US House will take a second look at their harmful version of the Farm Bill. The bill originally failed to pass the House because of its many harmful provisions that would have taken SNAP (the Supplemental Nutrition Assistance Program, formally known as Food Stamps) away from North Carolinians struggling with food insecurity.

Last year, North Carolina was the 10th hungriest state in the nation, with more than 600,000 households struggling to place food on the table each night. SNAP is a critical tool in helping to address that need. In the same year, more than 1.3 million North Carolinians participated in SNAP.

While the US House proposal will hurt our state, the US Senate version will do the opposite. Not only does the Senate bill fully fund SNAP, it invests in Employment and Training programs that help SNAP recipients find meaningful work.

Take a look below to see how else the House and Senate versions differ:

Brian Kennedy II is a Public Policy Fellow for the Budget & Tax Center, a project of the North Carolina Justice Center.

NC Budget and Tax Center

Limits on income tax will put immediate pressure on policymakers to raise other taxes

The income tax cap being considered by the House this week would put public investments at risk and is likely to force policymakers to raise other taxes to meet growing needs in the near term.

Last summer, the Fiscal Research Division provided a 5-year forecast of the state’s fiscal position that took into account the state’s growing population and the cost of delivering just current service levels to more people over time.  Their findings were, that in Fiscal Year 2019-2020, North Carolina policymakers would not have the revenue to deliver the same diminished services to future populations. Even under revisions to revenue collections next year, this finding holds.

The state’s current tax code, resulting from the tax cuts since 2013, and  growth still slow relative to historic performance is primarily to blame.  An income tax cap now would lock in the $2.6 billion in annual revenue loss from these tax changes since 2013 and make it more difficult to make decisions that responsibly balance the state budget.

The near term prospect of state policymakers raising revenue is real.  It is not hypothetical.

Indeed, in the briefing of House Finance on the bill, the Senate sponsor made clear that many other taxes could be raised should the state need to meet growing needs—franchise taxes, sales taxes and more.  He also made clear that many deductions or credits could be gotten rid of, including reductions or elimination of the standard deduction.

The income tax cap is not about holding taxes low for everyone. It is about limiting the tools available to future policymakers and locking in the income tax cuts that have primarily benefited the state’s wealthiest taxpayers.

NC Budget and Tax Center

Lowering the income tax cap would come back to haunt N.C. when the next recession occurs

Among the proposed ballot initiatives hanging in the air as the 2018 legislative session draws near its end is a move to change the North Carolina Constitution to lower the income tax rate cap . While this proposal has not received a great deal of attention, it could have profound and long-lasting impacts on the fiscal health of state and local governments. The proposal would dramatically reduce our ability to respond to changing economic circumstances, a problem that will likely be felt most acutely whenever the next economic downturn occurs.

It is not clear when the next downturn will happen, but current risks and historical precedent indicate that the run of growth will not last forever. The current economic expansion is already one of the longest on record and, if there is one thing we know about economic conditions, it is that they are bound to change.

Prolonged periods of growth tend to create what economists call “irrational exuberance”, a collective forgetfulness that long-term decisions should be calibrated to deal with bad times as well as good. “It’s just the time when it feels like all is going fabulously that we make mistakes,” says Mark Zandi, chief economist of Moody’s Analytics.

Dramatically lowering the maximum income tax rate permitted under the North Carolina Constitution is a good example of irrational exuberance, because it is likely to come back to haunt us whenever this run of growth comes to an end. Lowering the income tax cap would tie our state’s fiscal hands when the next recession occurs, effectively forcing the state government to increase sales taxes, franchise taxes, fees, and other levies when the next recession creates a hole in public finances. Local governments could also be forced to increase property taxes if state funding dries up during the next recession. Read more

NC Budget and Tax Center

What lawmakers did and didn’t mention today about their tax choices

Today, the House Finance committee approved a proposal to change the state Constitution to lock in the recent tax choices made by the General Assembly leadership.  The proposal would lock in the current income tax rate that has made it impossible for the state to keep up with the education, health and infrastructure needs of a growing state.

Legislative leaders’ tax choices have meant the state has at least $2.5 billion less in revenue each year than would have been available to invest before 2013 in textbooks and classroom supplies, serve the health and well-being of older North Carolinians and families, and support the communities across the state seeking to revitalize and connect to economic opportunity.

Amidst the debate, proponents sought to tell their history of the tax choices that have been made since 2010.  Here are some of the facts that they missed in that retelling:

  1. Future legislative leaders won’t be keeping taxes low for North Carolinians. As was stated in the committee, the bottom line with locking in the income tax rate is not to hold taxes down for everyday North Carolinians. Indeed, proponents of the legislation noted a laundry list of revenue options that they could pursue, including franchise tax increases, elimination of itemized deductions (things like the mortgage interest and property tax deduction, the charitable deduction), excise taxes, elimination of the standard deduction.  An income tax cap in the state Constitution will limit the ability of future legislators to raise taxes on the richest taxpayers, but will ensure that they raise taxes on nearly everyone and everything else. In states with tax and spending limits, researchers have found that local governments and state governments are often forced to raise taxes primarily on working people and cut services, and experience higher interest rates.
  2. Legislative leaders decided not to extend a temporary sales tax even though state revenues had not fully recovered from the historic Great Recession. Indeed, the decision to not extend that temporary tax coincided with a loss of federal funding meant to stabilize investments in education and meant that the state would not commit to keeping up with the cost of educating our children. North Carolina has yet to return to the same level of funding we were providing for each child’s education before the Recession started.
  3. By allowing a temporary sales tax to expire and subsequently enacting a tax code that won’t keep up with growing needs, legislative leaders have put North Carolina on a path that undermines our core public investments. Under the just passed state budget, the General Assembly leadership will have reduced state investments as a share of the economy for a decade.
  4. Income taxes are an important part of the state’s revenue system, representing more than half of the General Fund revenue. Income taxes, while subject to decline as all taxes are in a recession, are also best aligned with income growth. A graduated income tax rate that applies a rate on income over certain amounts is even better able to ensure that the tax code is aligned with where income is growing—primarily for the very richest taxpayers in the state. By locking in the current low rate, legislators will be limiting a key tool to align the tax code with future needs.
  5. North Carolina’s economy has not boomed as a result of state leaders’ tax decisions. On many key indicators, North Carolina continues to fall short of delivering economic opportunity to all—poverty remains elevated, wages for the median worker are lagging, and there are still too few jobs for those who want to work.  North Carolina has also not outperformed our regional neighbors on other traditional measures of economic growth.
  6. Current legislative leaders have a list of major infrastructure projects that they would like to prioritize, and many local governments are also using bonds to invest in their capital needs. Rating agencies have typically looked at permanent tax and spending limits as a risky prospect, as states will have limited tools to raise the revenue to repay their loans.
NC Budget and Tax Center

Senate Farm Bill commits to supporting hungry North Carolinians

Late last week, the U.S. Senate Agricultural Committee released their version of the 2018 Farm BillMuch unlike the House version, this bill was created through a truly bipartisan process and contains provisions to help, not harm, those in need of food assistance. Not only does this bill protect the Supplemental Nutritional Assistance Program (SNAP), formally known as Food Stamps, it includes provisions that work to make the program even more efficient and fund efforts to help jobless workers find gainful employment.

Here’s just how different the two bills are:

House Bill

Senate Bill

  • A bipartisan bill that includes compromises from both sides of the aisle
  • Funds evidence-based research on supporting SNAP participants in gaining meaningful employment
  • Encourages new public-private partnerships to support job training
  • Eases administrative barriers for seniors and people with disabilities
  • Supports administrative costs of the Food Distribution Program on Indian Reservations

While the Senate bill is worthy to be celebrated, it isn’t safe from harmful changes. The bill will likely be marked up in the Senate Agricultural Committee this week and will quickly move to the Senate floor, where it could be voted on as early as next week. Between now and then, the bill could be subject to changes and amendments that undo many of the bipartisan provisions that help North Carolinians struggling with hunger.

It is also critical to note that while the House version of the Farm Bill was defeated last month because of its potential harmful impacts, it is possible that the same bill will be brought back to the House floor due to a procedural move by House leadership.

North Carolinians have made it very clear to their Congressional delegation that we deserve a Farm Bill that supports, not punishes, North Carolinians struggling with hunger. Let’s hope that our lawmakers do the right thing and pass a Farm Bill that protects and strengthens SNAP.

Brian Kennedy II is a Public Policy Fellow for the Budget & Tax Center, a project of the North Carolina Justice Center.