NC Budget and Tax Center

Standard deduction increase is a blunderbuss tax policy – noisy but ineffective

A proposal to raise the standard personal income tax deduction is being touted as a boon to working class North Carolinians, but that sales pitch doesn’t tell the whole story. The Senate is right to worry that too many working families are struggling to make ends meet and that their tax choices haven’t helped, but instead of developing a targeted response to the state’s upside down tax code, the Senate is reaching for an old blunderbuss they have lying around.

As many states (including North Carolina) have already learned from experience, there are much more effective ways of putting money into the pockets where it will do the most good. In the realm of tax policy, the Earned Income Tax Credit (EITC) would address the problem that legislative leaders claim to have in mind, but in a much more efficient and effective way, by helping working families keep more of what they earn and offsetting the increasing reliance on the sales tax in our state.

PW_eitc v sd

As shown here (described in more detail in a recent Prosperity Watch), increasing the standard deduction will mostly benefit people who are already earning above the statewide median wage. On the other hand, the overwhelming majority of assistance that would be provided through a state EITC would go to working North Carolinians who are struggling to get by on marginal wages.

In contrast, legislative leaders in Minnesota spent their week finding ways to expand the Working Families Tax Credit and the Child and Dependent Care Tax Credits. Instead of blindly shelling out larger standard deductions at a high cost to the services and systems that support vibrant communities for working families, the Minnesota approach is a much more effective means of designing a tax code that works for working families and the economy.

At least legislative leaders are acknowledging that working and middle class families weren’t well-served by the first round of tax changes; too bad their chosen policy response will create more noise than impact.

2017 Fiscal Year State Budget, NC Budget and Tax Center

Budget proposals so far: What you might have missed

As we wait on the Senate to release their budget proposal, here’s a look back at our coverage of the budget proposals from the Governor and the House.

General Analysis

  • A stroll down memory lane of recent tax budgets, with tax cuts as the guide rails: Tax changes passed since 2013 have not only significantly reduced revenue available for public investments, but also shifted the tax load to low- and middle- income taxpayers and away from the wealthy and profitable corporations.
  • North Carolina deserves better: North Carolinians are seeing how limited policymakers’ aspirations are for the future of communities and families. First, the Governor proposed a state budget that fell far short of what North Carolina needs to have thriving communities and broad prosperity. Then,  leaders of the House and Senate agreed on setting their sights even lower.

House’s Budget Proposal

Governor’s Proposal

More Coverage

Also, be sure to check out our series on the state budget that hears from North Carolina experts on what our state needs to progress so that all North Carolinians have a fair shot to get ahead.

Follow the Budget & Tax Center’s posts here for continuing budget coverage.

Follow the Budget & Tax Center Twitter feed for live coverage of budget debates and decisions.

2017 Fiscal Year State Budget, Commentary

Five of the biggest problems with the state budget passed by the NC House this week

Budget choicesThere are actually dozens of things not to like about the 2017 budget proposal advanced by the North Carolina House of Representatives yesterday. Unfortunately, caring and thinking people have become so numbed and cowed by the relentless and regressive assault on progress and modernity that conservatives have been waging in recent years that many have acquiesced passively. Others have simply allowed themselves to be bought off by mere crumbs and/or simply shrugged their shoulders and expressed gratitude that things weren’t worse. Add to this the vindictive and mean-spirited brand of politics that is practiced by so many conservative leaders on Jones Street these days and it’s no particular surprise that numerous state lawmakers who know better simply waved the white flag this week.

Fortunately, despite the blather from bill sponsors and their apologists and the mostly milquetoast media coverage the muted legislative debate generated, some experts are tolling the damage that the budget bill will wreak (especially when combined with the destructive impact of budgets enacted in recent years).

Here are some of the biggest “sore thumb” problems that are already evident — even before the state Senate likely starts making things worse next week — according to the experts at the N.C. Budget and Tax Center:

#1 – The destructive use of artificial and crippling spending caps – “The House budget would keep state support for services below pre-recession levels, when adjusted for inflation. That would be fine if public needs had shrunk. But they have grown. The budget also caps off the only period as far back as 1971 in which state spending would decline as a share of the economy for eight years in a row while the economy itself grows. As such, many unmet needs will persist in programs that support vulnerable communities, despite a slight increase in investments and a modest compensation package for teachers and state employees.”

#2 – Adding still more, poorly targeted tax cuts – Despite the huge need for new dollars to rebuild structures and services decimated by years of cuts, the House doubles down on the use of poorly targeted tax cuts — much of which will inure to the benefit of the state’s wealthiest individuals. As the BTC notes: “Their proposal reduces General Fund availability by $25 million due to raising the standard deduction to a maximum $16,000 from $15,500, based on filing status. It also raises the maximum by $500 each year over the subsequent three fiscal years. This approach is more costly and not as well targeted as restore the state EITC, which does a better job of helping working families and addressing inequities in our tax code. They reduce General Fund availability by another $51.5 million for a tax break exempting mill machinery from state taxes.”

#3 – Providing inadequate pay to teachers and other state employees – Teacher raises will be decent for some teachers under the House plan (up to 5% for some), but the proposal has the distinct feel of an election year bone that will do little-to-nothing to make up for years of neglect — especially for veteran teachers. Add to the fact that other state employees will go for the umpteenth year in a row without a truly meaningful raise (just 2% this year) during a time of significant national economic growth and falling unemployment and it seems fair to ask: “If not now, when?”

#4 – Shortchanging a bevy of essential structures and systemsRead more

2017 Fiscal Year State Budget, NC Budget and Tax Center

Remarks by Rep. Paul Luebke on the House budget

The full transcript of the remarks by Rep. Paul Luebke today during the House debate on the budget. (Watch his remarks beginning at the 16:30 mark.)

My concern looking at this bill is that it’s not placed in the proper context. And the context is the needs of the state and decisions that have been made in the last few years – particularly since 2013 – about taxes.

We all know you cannot have appropriations – you cannot have a budget – without taxes. And a lot of the times we have a tax that looks, for example, like the standard deduction this year in the tax bill. It is the “cost” – that is to say the reduction to availability – is $25 million. But the ballooning effect is there, and two years from now it reduces availability by $133 million. We are taking off the table a lot of revenue to meet the needs of the state. You might ask, “What are these needs? Haven’t we done everything in this budget that we could possibly do?” And the answer is, “No.”

While the budget does right by overall teachers, it doesn’t do anything for those teachers who are beginning. No one can really claim that $35,000 is an adequate income for a teacher. In fact, I have data that shows that if a teacher has a family at $35,000 that she or he is eligible for the Earned Income Tax Credit. That is to say that because of the low-income and family size there is, under that program – a program we all know, I think, was started by President Reagan and expanded by President Clinton – a teacher at $35,000 is eligible for the tax credit because the income isn’t sufficient.

Read more

NC Budget and Tax Center

Affordable higher education should be a priority for North Carolina

As state support for higher education has eroded, North Carolina students and families have shouldered more and more of the cost of a post-secondary education. A new report by the Center on Budget and Policy Priorities highlights how years of reduced investment by North Carolina in higher education has helped drive up tuition at public colleges, jeopardizing the ability of many students and families to afford an education that is key to their long-term financial success and essential to a growing economy.

State support for higher education remains well below the 2007-08 school year — 20.1 percent when adjusted for inflation, the report notes. Amid an improving national and state economy, state lawmakers have chosen tax cuts over restoring and boosting investment in higher education. These tax cuts have significantly reduced revenue that otherwise would be available to make a college education more affordable. Revenue loss will top more than $2 billion each year once all tax changes passed since 2013 are fully in place.

State and local dollars make up a significant portion of public colleges and universities budget. As such, large cuts in state funding for public universities in recent years have resulted in a steady increase in tuition. North Carolina is among the top of states for the percent increase in tuition at public four year colleges since 2008. Average tuition at four-year public colleges in North Carolina is up by $2,051, or nearly 42 percent, since the 2007-08 school year, among the highest increases in the nation. Meanwhile, federal and state financial aid for the average student has not kept up with the rising costs of earning a college degree, the report found. Read more