NC Budget and Tax Center

NC Budget and Tax Center

After enacting huge, costly income tax cuts in recent years that largely benefited the state’s wealthiest people and biggest, most profitable corporations, pursuing more tax cuts would threaten North Carolina’s economy – and yet it appears state lawmakers are doing just that.

Questions remain about what will or won’t be in the budget the Legislature passes. What is known, though, is that the spending target agreed upon by the House and Senate is $230 million less than what the state is projected to take in over the year from tax revenue.

If that turns out to mean a tax-cut proposal, it will come in the face of strong evidence that such a strategy doesn’t deliver widespread economic benefits.  North Carolina is experiencing a very uneven economic recovery. Many people still can’t find jobs and many who are working are being paid less than what it takes to make ends meet. Tax cuts aren’t going to create the jobs North Carolina needs and they take resources away from what the state should invest in to promote real growth – quality public schools, affordable higher education, modern infrastructure, and safe and healthy communities, for example.

A continued pursuit of failed trickle-down economics policies would occur as investments in those public services and others are still below pre-recession levels and insufficient to meet growing needs.

State lawmakers are pursuing two paths to usher in more income tax cuts.

One path builds more tax cuts into the state budget. Budgets passed by both the House and the Senate lower the corporate income tax rate to 3 percent from 5 percent over the next two years. These tax cuts will result in more than $450 million less available to the state for public services over the next two years. As we’ve highlighted previously, cutting corporate income taxes won’t boost North Carolina’s economy; taxes are but a fraction of a business’s costs. Furthermore, the Senate’s budget changes how corporations apportion their income for state income tax purposes and reduces the corporate franchise tax rate. In total, tax changes included in the Senate’s budget would result in nearly $1 billion in less state revenue over the next two years.

The second path, Senate Bill 607, would amend the state constitution to arbitrarily cap the state income tax rate at 5 percent. This would reduce annual state revenue for public investments by around $1.5 billion. The result would mean more erosion of vital services and probably other tax increases – most likely the state sales tax. In combination with other proposed changes to the state constitution, this path would hamstring state lawmakers in the years ahead from meeting the priorities of North Carolinians by restricting the overall level of investment in our public schools, public colleges and universities, and other important areas.

These two paths that state lawmakers are pursuing are troublesome, particularly at a time when investing in North Carolina’s future is important to the state’s economic prospects. Consequently, the continued pursuit of trickle-down economics fails to promote broadly shared prosperity and prevents the entire state from moving forward together.

NC Budget and Tax Center

Amid major differences between the House and Senate respective budgets, public schools across the state wait to see what level of state support will be provided for public education. The final decision doesn’t just matter for the education of our children but the attractiveness of our communities and the long-term potential of our economy to grow together.

Funding may not solve every challenge in public education, but it certainly can make a difference in ensuring that a quality education for every child can be provided. As I’ve previously highlighted, smart allocation of public dollars can ensure that regardless of where they live in the state, every child receives a quality education, and in so doing an opportunity for them and in turn the economy to do well in the future.

Here are six trends that highlight the impact of state-level budget decisions on public education in North Carolina.

  1. Total state funding for public schools remains below pre-recession level

State funding for public schools has not yet reached its peak level for FY 2008 prior to the Great Recession. For FY 2015, total state funding for public education was $8.04 billion compared to $8.6 billion for FY 2008 when adjusted for inflation. This decline in state funding equates to $578 million in less funding for public schools.

Total Pub Ed Spending

Note: For this blog post, state funding for teacher pay increases are included in total spending for public education. BTC normally backs this particular funding out of the public education budget, as it has historically been included in the Reserves section of the state budget. Accordingly, figures in this blog post may differ from BTC’s other analyses of the state budget.

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NC Budget and Tax Center

Last week state lawmakers extended the 2015-17 fiscal year budget negotiation deadline from August 14th to August 31st, which is 61 days after the original budget deadline of July 1st. House and Senate leadership need additional time to work on the final budget deal because they have not been able to iron out the stark differences in their budget and tax priorities. If lawmakers were to approve a budget at the end of August, the 2015-17 budget would be the latest-approved two-year budget since 1998 and second-latest one going back to 1961.

More important than when the final agreement is reached is whether the final budget most closely reflects the priorities of North Carolinians for quality educational experiences, safe and vibrant communities, and healthy environments.

In the meantime, the new stop-gap measure—known officially as a Continuing Resolution—keeps state programs and services operating largely along the same lines as the first stop-gap measure approved at the end of June. Similar to the first temporary measure, the new measure funds current programs and services at existing levels, with four major exceptions that are listed below. Read More

NC Budget and Tax Center

The radical changes to the state Constitution passed out of the Senate today puts policymakers’ primary responsibility of creating a budget each year on auto-pilot.

These arbitrary and flawed formulas for spending growth and income tax collections will reduce revenue by nearly $2 billion annually and restrict access to the state’s rainy day fund in times of crisis. It’s clear these proposals are a fiscally irresponsible path that will harm our state’s families and future.

NC Budget and Tax Center

Last night on the Senate floor, the initial debate about a suite of constitutional changes that would undercut our state’s economy focused on having North Carolina voters weigh in on all three changes in one vote in March 2016.

These changes would:

  1. Limit investments in education, health, and other services through a rigid, arbitrary, and fundamentally flawed spending formula. A 2/3rd majority vote of legislators would be needed to override that formula.
  2. Cap the income tax at 5 percent, which significantly reduces the resources available to run our schools and maintain investments in other critical priorities.
  3. Limit access to the state’s rainy day fund – the Emergency Savings Reserve Fund – by requiring a 2/3rd majority vote of legislators.

The result of these changes to the constitution would be an ongoing and annual budget crisis in which revenues are dramatically limited—while taxes are likely increased for middle-class consumers and property owners—and a flawed formula determines spending each year, reducing the ability of policymakers to meet the needs of a growing economy.

As the debate continues on the Senate floor, it’s particularly important that lawmakers remember a two key things so they don’t fall for some of the most common myths about these proposals: First, there is no use having a rainy day fund for emergencies if you restrict access to those funds.  Second, tax and spending limits and formulas built into the constitution are anti-democratic because they limit the ability of lawmakers to craft budgets that reflect the will of the people. Read More