NC Budget and Tax Center

NC Budget and Tax Center

While the first storm of winter was heading our way yesterday, prominent economist Jared Bernstein discussed a low pressure system of a different type, how the persistent failure to achieve full employment is pushing wages down and contributing to growing wealth inequality.

Drawing on his work on the importance of full employment, Dr. Bernstein discussed how underemployment is responsible for much of the wage stagnation we have seen in recent decades. Particularly as attacks on organized labor have reduced the power of workers to directly pressure employers for better pay, and with a lack of political will to increase the minimum wage, workers’ only tend to see better pay when employers have to actively compete with each other to attract employees. When the economy isn’t creating enough jobs, and a large pool of unemployed people are desperate to find work, employers are not compelled to increase wages, which is precisely what we have seen in recent years.

Unemployment with Missing WorkersThe problem of underemployment depressing wages is not unique to North Carolina, but it is particularly pressing here in the Tar Heel state. Included in our End of the Year Chartbook for 2015, the two charts included here indicate that the dynamic Dr. Bernstein identified is alarmingly active here in NC. First, if we include all of the “Missing Workers” who were forced out of the labor pool during the recession due to lack of jobs, the real unemployment rate in North Carolina is likely still in the double figures. With so many people still looking for work, employers in many industries are not raising wages, which means that workers are receiving less of the value they create.NC Workers Receiving Less of the Value they Create

Dr. Bernstein argued that we don’t have to accept this state of affairs. There are policy responses that could get us closer to full employment and deliver wage growth, but a lack of political will at both the state and federal levels is preventing those remedies from being administered. So long as state leaders pursue tax cuts instead of raising the minimum wage, expanding educational and workforce investments, and wage supports like the Earned Income Tax Credit, Dr. Bernstein worries that we will continue to see inflated unemployment and wage stagnation and miss the critical opportunity to make the economy work for more people.

NC Budget and Tax Center

Revenue is up in North Carolina—which is no surprise because the national and state economies are growing. But before jumping to the conclusion that tax cuts are the reason why, take a look at the numbers. Revenue collections for the first half of this 2016 fiscal year are higher than the same period last fiscal year, a report from the state’s controller’s office highlights. However, when compared to the same period for FY 2013, receipts from the personal income tax are down and receipts from the sales tax, which now applies to more goods and services, are up (see table below). This is the tax shift that state lawmakers put into motion in recent years.

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This tax shift – less reliance on revenue from the income tax and more from the sales tax – is an expressed desire of state leaders. Read More

NC Budget and Tax Center

A recent opinion piece in Forbes Magazine wrongly claims that steps North Carolina took to reduce how much unemployment insurance provides to jobless men and women – and make it harder to collect – are somehow helping North Carolina’s economy.

Nothing could be further from the truth.

The article, written by North Carolina’s rightwing Civitas Institute and one of its business partners, heralds the underreported tax cut bonanza in the unemployment insurance as driving workers into employment and employers to create jobs.

In reality, North Carolina’s overhaul of unemployment insurance devastated a system meant to protect the economy from lower consumer demand that happens when job losses mount through no fault of workers.

As policymakers sought to pay down the debt incurred because of historic job loss during the Great Recession and an insufficient Trust Fund resulting from years of tax cuts, they pursued a lopsided approach. They called on jobless workers to pay far more through cuts to their unemployment insurance payments, reducing the number of weeks they could collect UI, making the system harder to access, and  limiting  job training or workforce development opportunities.

The result:  North Carolina went from being not particularly generous _  the middle of the pack among all states _ to downright stingy, at the bottom.

In the third quarter of 2015 (the latest data available):

  • Just 11% of the state’s unemployed receive unemployment insurance which ranks us last in the country
  • The state’s average weekly benefit was $233.69 — 46th in the country. Average weekly benefit as a percent of average weekly wage was 27 percent — 44th in the country.
  • The average duration for collecting UI was 11.5 weeks – dead last in the country.

Before the changes went into effect, the story wasn’t nearly so bad.  The measures:

  • The state had a 39% of unemployed workers receiving unemployment insurance in the second quarter of 2013 which ranked us 24th
  • The state average weekly benefit was $301.06 –   25th in the country.
  • The state average benefit duration was 15.9 weeks – ranking us 31st.

In 2013, the Tax Foundation, a conservative organization that policymakers often quote, ranked North Carolina’s UI system fifth most favorable to business in the nation. Only Arizona, Oklahoma, Delaware and Louisiana scored higher. That was BEFORE the unemployment insurance changes.

Today, employers contribute to the system just one penny for every $100 of wages paid and the average tax rate of 2.2 percent is below what the US Department of Labor determines to be adequate.

Perhaps most troubling in the arguments of those inclined to ignore economic realities is the suggestion that the system was rife with fraud and was discouraging people from seeking jobs.  The facts are otherwise. Read More

NC Budget and Tax Center, Uncategorized

Last Thursday, members of the Economic Development and Global Engagement Oversight Committee saw evidence that many “business climate” rankings overstate how well North Carolina is actually doing.Abernathy Slide - Rankings and Econ Performance

Respected economic expert Ted Abernathy, formerly the Executive Director of the Southern Growth Policies board and now with Economic Leadership, an economic development and analysis consultancy, briefed the committee on a range of economic dynamics from growing wage gaps between urban and rural North Carolina to factors that influence our competitiveness on the global market.

Abernathy also examined how North Carolina’s economic performance compared with how we fared in several business interest group and media publications. This analysis shows that North Carolina’s economic performance has fallen short of its stature in many of the rankings. As can be seen in the graph, North Carolina is in the top 20% in performance (“Statistical Ranking”), but is a top 5 state in the “Best States” rankings. Our economy is doing better than many states, but not nearly as well as many state rankings would imply. Read More

NC Budget and Tax Center

Today the General Assembly’s Revenue Laws Committee held its first meeting for 2016. The meeting’s agenda included presentations to state lawmakers on the committee from state officials regarding tax changes passed last year as well as proposed tax changes that state leaders would like to pass this year. Also included on the agenda was a presentation from a representative of the Tax Foundation (TF), tax policy research organization that favors tax cuts for profitable corporations and the wealthy, and recently released analysis that fails to acknowledge the cost of such an approach to North Carolina’s ability to fund public schools, infrastructure like roads and water/sewer, state parks or public health initiatives.

Here are three takeaways from today’s meeting.

  • Despite the TF spokesman informing that his organization’s assessment of the impact of tax reform in North Carolina uses hypothetical (a.k.a. made up) taxpayer scenarios, some lawmakers still pointed to these scenarios during the meeting to support their claim that the tax changes benefit all North Carolinians. This is not true. The TF spokesman even acknowledged during his presentation that all NC taxpayers do not come out ahead under tax changes since 2013.

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