NC Budget and Tax Center

There is freedom in living in a state that is rich with opportunity

Each year the Tax Foundation puts together an estimate of when in the year high-income Americans — and residents in each state — have worked enough hours to pay their taxes on average.  They have determined that Tax Freedom Day for 2019 to be April 16.

While the Center on Budget and Policy Priorities (CBPP) has debunked their methodology with precision, as the excerpt shows below, the fundamental error in this consideration of taxes is that it fails to account for the opportunities — and, indeed, freedoms — that are provided through investing our public dollars in opportunities for all.  The very idea that one is more free when one works for themselves rather than for our collective well-being is flawed. It belies the reality that our own well-being is tied to that of our neighbor and that our economic strength comes from our ability to ensure every person can reach their full potential.

Of course, the Tax Foundation’s Tax Freedom Day calculation also goes a long way in demonstrating a fundamental problem with discussion of taxes in our country.  These discussions too often happen without talking about who pays, and the evidence is clear that North Carolinians with middle- and low-incomes pay a greater share of their income in total state taxes than those in the top 1 percent. Read more

Commentary, Legislature, NC Budget and Tax Center

GOP Medicaid bill takes a massive step in the wrong direction

Rep. Donny Lambeth, R-Forsyth, presenting the GOP’s Medicaid bill Tuesday.

Yesterday, legislators filed a new version of Medicaid expansion, House Bill 655, titled “NC Health Care for Working Families.” This bill imposes even harsher work compliance provisions on low-income and poor North Carolinians than previous versions.

Specifically, the bill follows the work reporting requirements seen in the Supplemental Nutritional Assistance Program (SNAP, formally known as food stamps). This raises a serious concern, considering that extensive research has demonstrated just how broken the SNAP program’s work provisions are.

A new report from the nonprofit ideas42 points out that not only do work requirements not help people to find jobs, the provisions seen in the SNAP program have the exact opposite effect. The report finds that:

  • The burdensome compliance of requirements dramatically increases the cost of obtaining assistance. Under SNAP rules, people are required to prove that they worked 20 hours a week. Lost paperwork, missed notices, and clerical errors have resulted in a significant number of people losing benefits, despite the fact that they’ve actually fulfilled the requirements. Additionally, many low-wage workers lack access to predictable schedules, paid leave, and other basic protections. This means that, regardless of a worker’s best efforts to comply, they may easily fall short due to circumstances completely out of their control.
  • Rigid work requirements fail to recognize that people living in poverty know best how to prioritize their time. People living in poverty face tremendous everyday pressures of deciding how to best use their time in order to fulfill their obligations and to make ends meet. The rigid 20-hour work requirement does not reflect the reality that a disproportionate number of low-wage workers are employed in seasonal industries with unpredictable hours, or that they are more likely to take time to care for sick or aging family members. Rather than attempting to legislate the schedules of North Carolinians living in poverty, policy makers should provide them with the tools to make decisions and choices to help lift them out of poverty.
  • These policies rely on and reinforce harmful and misguided beliefs about people living in poverty. Proponents of work requirements believe that these provisions will force people uninterested in work to find jobs. This presumption that this belief is built on could not be further from the truth. The U.S. Census Bureau found that less than 0.3 percent of SNAP recipients aged 18-49 reported that they are not working because they are not interested. Behavioral research has found that people living in poverty actually make better and more rational choices in regards to money than people with high incomes. This is because they have to. When living in poverty, there is very little wiggle room for wasteful or poor choices.

Rep. Donny Lambeth, R-Forsyth, states that the work requirements are a political necessity, arguing: “There are things we as legislators have to do in order to get things done.” This thought, however, does not reflect the emerging national conversation on work reporting requirements in our safety net programs.

Last year, proposals in Congress to make SNAP’s work requirements even more restrictive met opposition from both Republicans and Democrats. In a show of bipartisanship, legislators decided that more work requirements were not a good idea, and that making sure that struggling people receive the help they need was a higher priority.

Just last month, a federal judge ruled that similar Medicaid work requirements in Arkansas and Kentucky were illegal and that they undercut the entire objective of the Medicaid program to provide “medical coverage to the needy.” Research shows that when people have access to critical supports like food and healthcare, they are more likely to find gainful and steady employment.

Work requirements are an ill-informed attempt to legislate behavior and do not reflect the realities of people living in poverty. In fact, the science shows that they effectively take away the ability of people to make good, rational decisions. If our legislators are truly in the business of helping to improve the lives of North Carolinians, they will listen to the research and evidence and reject these harmful provisions.

Brian Kennedy II is a Public Policy Analyst for the Budget & Tax Center at the N.C. Justice Center.

Commentary, NC Budget and Tax Center

New report: GOP proposal to slash and ultimately end state franchise tax is a mistake

A new report from the N.C. Budget and Tax Center offers a dim assessment of a recent proposal from North Carolina Senate Republicans to enact yet another cuts to state business taxes.

The latest proposal would reduce the franchise tax – a tax that companies pay on their net worth each year.

Bill sponsors have stated that their intent is to pursue complete elimination of the franchise tax in future years – a move that would result in a loss of more than $670 million per year that’s use to fund public services and structures like schools, transportation and protecting the environment.

This is from the report:

The franchise tax plays a vital role as an alternative minimum corporate tax that funds important priorities across the state. If a corporation manages to zero-out its corporate income tax liability because of tax breaks and loopholes (like single sales factor apportionment, a wide array of tax credits or the absence of mandatory combined reporting), the franchise tax ensures that corporation will pay a modest amount of tax to the state to support the state services and infrastructure from which they benefit – like the skilled workforce produced by state K-12 and higher education programs and the roads that enable corporations to get their products to customers. And the amount of franchise tax liability is modest, according to the latest data for tax year 2016, averaging just $628 annually for S corporations and $8,400 for C corporations.

Rather than reduce or eliminate the franchise tax, it is time that North Carolina policymakers develop a comprehensive plan for how businesses will contribute to their communities through taxes. This plan must recognize that the reduction in the corporate income tax rate has significantly reduced revenue and shifted the tax load onto individual taxpayers.

Let’s hope the proposal doesn’t get very far. As the report points out, cutting North Carolina business taxes further won’t make the state’s tax structure more “competitive.” The corporate income tax rate has already been slashed from 6.9 percent to 2.5 percent in recent years, and, at last count in 2017, North Carolina was already tied with Indiana for having the second-lowest business tax levels of any state. What’s more, as the graph above shows, it’s big businesses that pay an overwhelming share of the tax.

The bottom line: North Carolina already faces a host of unmet needs in our classrooms and our communities. Slashing already rock bottom business taxes is not the answer. Click here to read the BTC report.

NC Budget and Tax Center

N.C.’s public health investments lag behind population growth

This past Saturday concluded National Public Health Week 2019, which makes this a good time to revisit the level of investments that North Carolina leaders have made in public health and other areas that are known to affect health.

Last September, we highlighted the ways that public investments are tied to improved health outcomes. A growing body of research shows that funding for local health departments, in particular, is tied to fewer adverse outcomes and improved health, even when controlling for community differences in demographics, socioeconomic characteristics, and medical resources.

And yet, North Carolina lawmakers have agreed to spend fewer dollars on public health efforts in the state, even as the population has increased. Instead, investments should be made in strategies that are proven to help communities thrive, including in public health, in addition to other areas such as education and housing. Together, these cross-sector approaches help to build a culture of health that works to ensure that everyone can live in a healthy, thriving community.

Suzy Khachaturyan is a Policy Analyst with the Budget and Tax Center, a project of the North Carolina Justice Center.

Falling Behind in NC, NC Budget and Tax Center, Poverty and Policy Matters

February labor market data: Rural NC needs lots of love

Since February of 2017, North Carolina’s unemployment rate has fallen from 5 percent to 4.2 percent. But the lower unemployment rate, with its frequent fluctuations, simply reflects the prosperity of urban centers of the state and masks the struggles of rural North Carolina, where in many places things are worse than before the Great Recession.

February’s labor market data showed that more than half of the state’s counties have unemployment rates higher than the state average. Of these 57 counties, 36 are concentrated in rural Eastern North Carolina. This means that 63 percent of the counties with unemployment rates higher than the state average are clustered in the eastern part of the state.

NC counties (orange) with unemployment rates higher than state average (Feb 2019)

A more in-depth look into February’s labor market release shows that since the beginning of the Great Recession, 28 Eastern N.C. counties lost approximately 50,000 jobs, or 8 percent of their collective employment. This is a starkly different reality from Wake and Mecklenburg counties, whose employment has increased 33 and 36 percent respectively since December of 2007. There were 21 Double Whammy counties in February — those who have fewer jobs presently than at the beginning of the Great Recession and have also lost jobs year-over-year. A particularly startling example of this is Washington County, which lost 3 percent of its jobs since February 2018 but almost 30 percent from the start of the Great Recession. It is evident that things are not headed in the right direction.

(Above) 28 eastern N.C. counties that have lost 50,000 jobs (8%) collectively since the Great Recession

It is clear from analysis of the labor market over time that rural North Carolina is not recovering from economic and natural shocks, and state lawmakers need to invest in policies to help these communities, not in tax cuts that mostly help the wealthy and large corporations. It is far past time we focus on an economic strategy that supports a full recovery for families throughout all of the state’s communities.