NC Budget and Tax Center

NC Budget and Tax Center

We were surprised to learn today that the official estimates suggest North Carolina will have a $400 million surplus this fiscal year. This is certainly good news for our state – we won’t have to cut quite as much as we thought we would to the core public services that help our communities and families connect to economic opportunity and enjoy a high quality of life.

The revenue uptick, however, does not mean that the state has more than what we need to get families and the economy back on track. Nor is it a result of the failed economic theory that tax cuts spur economic growth and certainly it is not a sign that North Carolina is in a stronger position as a result of the tax cuts.

Here are a few things to keep in mind. Read More

NC Budget and Tax Center

The announcement today that North Carolina has paid down its unemployment insurance debt to the federal government is just a first milestone in the path to a solvent system. It is one that has been achieved through a series of harmful cuts impacting jobless workers, their families and communities and an approach that will ultimately reduce the long run potential of the system to serve as stabilizing force in the economy.  So as far as milestones go, the celebration seems premature.

Here are few things to remember about the unemployment insurance debt and the choice that policymakers made to pay employers’ debt with cuts to unemployment insurance for jobless workers.

1. Yes, historic job loss contributed to the need for the state to borrow from the federal government to ensure payments during the Great Recession, but that wasn’t the driver. It was tax cuts in the 1990s that set the system up to fail even before the recession hit.

2. North Carolina’s unemployment insurance system was pretty much middle of the pack on most measures of adequacy, reach and financing when policymakers decided to make their changes to it in 2013.  These changes have reduced average weekly benefit amounts and the number of jobless workers accessing the system.

3. The dollars from cutting benefits for jobless workers contributed the most to debt repayment according to estimates by the Upjohn Institute and Fiscal Research Division.  Nearly two-thirds comes from cuts to benefits and just 0.7 percent from state taxes.

4.  The final payments on the debt mean employers will no longer pay the automatic federal tax increases that were the primary way by which they contributed to the success of this system that benefits them.  The automatic federal tax increases went up $21 per worker each year or, for a full time employee, about a penny for every hour that worker worked. By 2013, employers were paying three cents more per hour worked per employee. Unemployment insurance taxes total represent about 0.1 percent of total business costs.

5. Unemployment insurance taxes are not a barrier to job creation or strong economic performance.  The opposite is the case: ensuring that the unemployment insurance system can serve its temporary and adequate wage replacement function means that employers are less likely to have to eliminate jobs and more able to rebound from a downturn.

Failure to make changes now to the financing of the unemployment insurance system by ensuring that employers contribute adequately and do not receive more tax cuts (as they will under current law) before the Trust Fund is truly solvent will undermine the system’s stabilizing force in the economy.  Future downturns could require more borrowing, benefit cuts or tax increases if policymakers prematurely reduce the state taxes contributed by employers. Failure to revisit the benefit cuts and the harm they have created will undermine the support of this system to the economy.

 

NC Budget and Tax Center

The Budget and Tax Center’s weekly posting of Prosperity Watch takes a look at how North Carolina’s communities are grappling with stark racial income disparities. Economic exclusion has its roots in predatory and discriminatory economic policies dating back centuries.

The harm of that economic exclusion is stark. Communities of color are far more likely to live in poverty than their white counterparts. To match the state’s white poverty rate of 12.3 percent, approximately 464,000 North Carolinians of color would have to be lifted above the poverty line. Racial disparities keep the economy from reaching its full potential to the tune of $63.53 billion, meaning bringing down poverty among people of color is an economic imperative. It’s also a moral imperative too.

Check out the latest Prosperity Watch for the details.

NC Budget and Tax Center

I recently noted the differing approaches of President Obama and Congress regarding tax changes, developing a budget and supporting the economy. In particular, I noted Congress’ push to eliminate the federal estate tax – which applies to very large inheritances by a small group of wealthy heirs.

Over the years, the amount of inheritance that is exempt from the federal estate tax has increased exponentially while efforts to raise the minimum wage in line with the growing costs of meeting basic needs have stalled.

In 2001, the federal minimum wage was $5.15 an hour and remained at that level until 2008 when it was increased to $5.85 an hour and then to $7.25 in 2010, where it remains today. On this issue, North Carolina has not differed from federal law, with a state minimum wage of $7.25 as well.

By contrast, in 2001, the amount of estate inheritance that could be exempt from the federal estate tax was $625,000. By 2008, this exemption amount increased to $2 million and for 2015 the exemption amount is $5.43 million. In 2013, North Carolina state lawmakers completely eliminated the state’s estate tax (only 23 North Carolina taxpayers paid an estate tax for the 2012 tax year). In the same year state lawmakers eliminated the state Earned Income Tax Credit, which helped more than 900,000 low- and moderate-income taxpayers who earn low wages keep more of what they earn to offset an already regressive state tax system. Read More

NC Budget and Tax Center

A new report commissioned by Think NC First and written by John Quinterno gives a new moniker to the official recovery that began in 2009: incomeless.  Add that to the “jobless” and “uneven” labels that the recovery has earned to date and the reality for us all begins to look not at all like recovery.  The report takes a thorough look at income in North Carolina and finds that the trends are “running in reverse.”  Among the findings:

  • From 2007 to 2013, the inflation-adjusted income of the median North Carolina household dropped by more than 8%. Median income fell by 5.5% from 2007 to 2009 and by another 3.2% during the recovery that started in 2009 through 2013.
  • From 2009 to 2013, real average household income fell or remained unchanged for every household income group in North Carolina except for the top 5%.
  • The distribution of household income in North Carolina has grown more unequal since 2007, and the distribution of income in North Carolina in 2013 was more unequal than in the nation as a whole.
  • The annual earnings of the median worker (ages 16+) fell by 7.4% between 2007 and 2013.
  • Real median household income in North Carolina was effectively no different in 2013 than in 1984.

As Quinterno points out, the lack of jobs and other labor market conditions have put downward pressure on wages but policy choices have made worse these wage outcomes.

Allowing inflation to erode the value of the minimum wage, refusing to enforce and to modernize labor laws, undercutting the effectiveness of the unemployment insurance system, making work more costly by repealing the state earned income tax credit, and enacting tax policies that fail to boost growth yet drain needed public revenues—these choices have tamped down wages and incomes.
Be sure to check out the full report here.