Commentary, NC Budget and Tax Center

Ditch economic myths that are holding North Carolina back

It is time to put tired economic myths out to pasture. While the fallout from this year’s election is far from settled, let’s hope that we can at least move past some familiar economic arguments that have distracted from the real economic challenges facing our state.LABOR-JOBS market graphic2c

First, we’ve been treated to several years of leaders in Raleigh touting the “Carolina Comeback”, even though it was always more of a nice-sounding phrase than actual reality. October’s labor market data show that around half of the counties in North Carolina have not experienced real economic recovery. Fifty-one of North Carolina’s one hundred counties still have fewer jobs than before the recession, which is why celebrations about North Carolina’s economic prowess ring more than a bit hollow.

We also need to dispense with the simplistic idea that economic problems are limited to rural and small town North Carolina. Cities like Raleigh and Charlotte have certainly fared better than many small communities, but the reality is more mixed and challenging than the simple urban vs. rural narrative would make it seem. In fact, ten of North Carolina’s fifteen metropolitan areas have a higher unemployment rate today than before the Great Recession, and only two metropolitan areas have actually reduced the number of people looking for work. That’s right, even in urban areas that have had a comparatively better run of it during the recovery, there are still not enough jobs for everyone that wants to work.

Lastly, we have to accept that economic policy enacted in Raleigh over the last several years has not fixed what’s broken in North Carolina. Cutting taxes has not ensured that everyone who wants a job can find one, or meant that hard work pays a living wage, or lifted the crushing weight of student debt, or delivered affordable health coverage for everyone, or built the physical and digital infrastructure that the modern economy demands, or helped people whose jobs have been lost to globalization and automation to transition into new careers. All of these fundamental challenges remain, and mere repetition will not transform talking points into real economic answers.

NC Budget and Tax Center

Unemployment insurance fix is needed

The Election Day exit polling of North Carolina voters found many deeply concerned about the economy and the inability of people in communities across our state to secure a foothold in the middle class.  We shouldn’t be surprised by that.

The recovery from the Great Recession has been slow and failed to deliver the kind of broad wage growth that delivers the benefits of expansion to the most people.  Instead, North Carolinians have experienced wages below where they were in 2007. Meanwhile too few jobs are available in many communities across the state.

Gateway communities—those small towns and cities—that served as the hub of manufacturing and the connection to economic opportunity for rural places were particularly hard hit in the recession and recovery with the loss of jobs in manufacturing and its failure to recover.  But these communities have continued to be hit with mass layoffs and have seen state policies that used to help get radically altered.

Today legislators gathered to discuss the unemployment insurance system but this broader context was absent as were the stories of the harm of changes made since 2013.  The unemployment insurance changes made in 2013 provide just one example of policy choices that put working people at a disadvantage when they have lost a job and need a hand up the most. By failing to design the system to cover a significant share of those who have lost their job through no fault of their own and to provide payment that is relative to the wages earned through prior work, the system is not as effective at ensuring that jobless workers can meet basic needs and stay attached to the labor market thus reducing demand for businesses goods and services.

It is time to fix NC’s unemployment insurance system so that it provides meaningful support for laid off workers, their families and their communities as they work to get back on their feet.

NC Budget and Tax Center

The stakes are high, NC should reverse course regarding tax policy

The costly tax cuts Kansas lawmakers passed in recent years have had a negative economic and fiscal impact on the state that serves as caution for North Carolina. Leaders in both states have expressed a desire to ultimately eliminate their respective income tax and rely more on the sales tax to fund core public investments. This tax shift would largely benefit the already well-off and powerful corporations and threatens to make North Carolina a less attractive and competitive state.

Both states are pursuing a dangerous course towards a damaging outcome. Kansas’s sprint toward this outcome provides a grim picture of what North Carolina can likely expect should we stay on this perilous path.

The failed Kansas experiment poses damaging consequences to the long-term health of the state. The state faces a persistent state budget deficit that in recent years have resulted in Governor Brownback using public education funding, highway money, state dollars for health care services, and increased sales taxes to plug the budget gap. Despite these efforts, Kansas still faces a $345 million budget hole.

Kansas lawmakers predicted a boom in job growth and the economy as a whole thanks to their massive tax cuts, but that boom never materialized. Instead, state revenue declined by 30 percent and, as the Kansas Center for Economic Growth highlights, personal income growth for Kansas only increased 1.6 percent, compared to 2.8 percent for the region and 3.1 percent for the nation since late 2012. As for public education, the state’s Supreme Court is scheduled to determine whether Kansas will be required to spend upwards of $500 million for school upgrades across the state, including in economically depressed areas. This ruling will address a 2014 ruling by the state’s highest court that disparities in public funding of education violated the state’s constitution. The stakes are high for Kansas and its nearly 3 million residents.

The stakes are also high for North Carolina and its more than 10 million residents. And as our state continues to grow the stakes will get higher. North Carolina lawmakers passed tax cuts in recent years that will reduce annual revenue by more than $2 billion. These are resources that could be used to fund our public schools, where state support remains below pre-recession levels. They could be used to provide health care services for a growing aging population and the poor. They could be used to reduce persistent wait lists for Pre-K and childcare subsidies. They could be used to ensure that a post-secondary education at public colleges and universities remains affordable for all North Carolina students.

North Carolina should get off its current path of prioritizing tax cuts over public investments. We have an opportunity to reverse course and avoid the likely damaging outcome that lies ahead, as can be seen in Kansas. Let’s take heed and reposition our state for a prosperous future.

NC Budget and Tax Center

Across the state, North Carolinians voted for public investments

North Carolinians who cast their ballots this year made several critical choices. Among these were important ballot initiatives in multiple counties to increase public investment in transit, housing, schools, parks and redevelopment. Research shows that quality infrastructure can help raise the living standard in diverse communities and boost productivity. By choosing to devote resources to these efforts, we as voters and community members take part in the creation of more equitable communities.

But the work does not end there. There is work outside of physical infrastructure that must be done in order to ensure that our state and local communities are inclusive and equitable for all.

Across the country, voters in other states supported increased investments made possible by raising revenue in a progressive way. In Maine, residents passed an income tax surcharge for income-earners making above $200,000, from 7.15 to 10.15 percent. In California, voters supported a 12-year extension of temporary income tax increases, adding three brackets with a top marginal rate of 13.3 percent.

In North Carolina, the following referendums on public investments passed by popular vote: Read more

NC Budget and Tax Center

North Carolina policymakers still propose making budget decisions using disastrously flawed formula

The Governor’s Office of State Budget & Management has told agencies to limit their requests for increases in budget items to just 2 percent above previous levels.

This reflects roughly the flawed formula of population plus inflation that has proven disastrous in places like Colorado. It results in artificially lower budget requests that don’t actually reflect the needs and opportunities that could strengthen N.C. families, communities and the economy.

The OSBM memo—in addition to requesting 2 percent budget reductions across all agencies—also limits requests for additional funding to 2 percent.

As has already been noted by NC Policy Watch, the Governor may not be willing to cut education by another 2 percent—a figure that could bring per pupil spending down to more than 10 percent below pre-recession levels when adjusted for inflation.  That in itself should raise concerns because even if the Governor and legislators try to make up those cuts in other budget areas like health care or environmental protection or community economic development, the cuts would still have an effect on our students. Research shows that where a child lives, how healthy they are and their environment is, matters to their educational success.

Such a limited view of what matters to North Carolina’s success and an unwillingness to pursue the best evidence of what works to build thriving communities is also fueling the 2 percent limit on proposed new investments. Such an arbitrary figure won’t allow North Carolina to make progress or pursue opportunities that set us apart and move us ahead as a state.  It will hold state investment below pre-recession levels despite seven years of an economic expansion. It will mean missed opportunities.

When you stop state agencies from requesting what is needed for communities and for North Carolina families, this is what will happen:.

  • More than 5,000 4-year olds will stay on the waiting list for pre-Kindergarten services;
  • Medicaid reimbursement rates will remain well below the national average;
  • North Carolina will fail to achieve peak levels of investment in the Housing Trust Fund even as Eastern NC and communities across the state face a housing crisis

These are just a few of the areas where North Carolina will see little to no progress for our communities under this arbitrary approach to the state budget. Another year of this approach makes it clear that our leaders aren’t thinking about our state’s future.