NC Budget and Tax Center

NC Budget and Tax Center

Identification is a necessity in modern life. From accessing utility services to checking a book out of the library, having an ID card can support participation in the day to day life of a community. For many, ID cards are difficult to secure and as a result their full participation in civic and economic life is limited.

Another late change to House Bill 318 would likely limit the ability of local governments to build trust with immigrant communities and pursue identification policies.

This is counter to emerging practice across the country, including in some North Carolina cities, where providing a municipal identification card to ensure residents can access basic public services, support a sense of membership in the community and facilitate identification for public safety and economic activities. Since 2007, six municipalities have developed ID card programs. New Haven (CT) was the first to do so in June 2007, followed by San Francisco (CA) in November 2007, Oakland (CA) in June 2009, Richmond (CA) in July 2011, Los Angeles (CA) in November 2012, and New York City (NY) in June 2014. Several other cities have considered or are considering ID card programs, including Minneapolis (MN), Chicago (IL), and Dayton (OH). Read More

NC Budget and Tax Center

State policymakers seem to think we can spare the money for another $1 billion tax cut, but also need to run up $2 billion* in new debt for core investments. The NC Senate this week takes up the Connect NC Bond Act of 2015 (HB 943), which would use debt instead of regular appropriations to pay for a range of repair and renovation projects. While now is a great time to borrow for major new investments, cutting taxes at the same time is bad news for North Carolina’s long-term fiscal house.

There are good reasons to issue debt right now. Interest rates are still pegged to the floor and low oil prices make it cheaper to complete construction projects. After seven years of below average appropriations, especially during the recovery, the list of overdue repair and upgrade projects is as long as your arm (assuming you’re on the tall side).

Simultaneously running up debt and cutting taxes is risky business. Together, the cost of tax cuts passed last week and repaying new debt will set North Carolina up for future cuts to core government functions that are already stretched beyond the breaking point. More tax cuts may also topple North Carolina’s credit rating, which already happened to states like Kansas when they cut taxes.  If lenders get even more edgy about North Carolina’s shaky fiscal house, they may demand higher interest rates in a few years’ time when the last of the bonds authorized by HB 943 would go to the credit market.

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NC Budget and Tax Center

The budget passed by state lawmakers last week expanded the sales tax base to include additional services that are not currently taxed. Accordingly, the repair or upkeep of a vehicle, the repair of a broken washer or dryer, or the maintenance of an air conditioning unit will now be subject to the sales tax.

It appears that the weekend gave policymakers time for some second thoughts about their plan, however. This week, state lawmakers are now aiming to pass a bill that will roll back one particular aspect of the sales tax base expansion included in the budget.

House Bill 117 (HB 117) includes a provision that would exempt repair, maintenance, and installation services on tangible property and motor vehicles covered under manufacturer or dealer warranties from the sales tax. Accordingly, under HB 117, if your vehicle or tangible property is covered under a warranty then you don’t pay a sales tax on repair and upkeep services. To the contrary, if your vehicle or other tangible property is not covered under a manufacturer or dealer warranty then you will pay more in sales taxes.

This tax change means that two people can own similar tangible property, but one could potentially end up paying more in sales taxes simply because they don’t have a manufacturer or dealer warranty. This is troubling because it is likely to particularly harm low-income taxpayers who already pay a larger share of their income in taxes compared to the well-off. Low-income taxpayers who have to take their non-warranted vehicle to an auto shop for an unexpected repair will pay more in sales taxes, for example. Meanwhile, those who are able to afford costly warranties will escape having to pay more in sales taxes.

The backtracking on services included in the sales tax base expansion contradicts state lawmakers’ supposed commitment to base broadening on principle. Broadening the sales tax base has been sold as a way to make the state’s tax code more effective and ensure that it reflects a more service-oriented economy. That appears to be the case only if powerful lobbyists don’t object. Read More

NC Budget and Tax Center

The August labor market data released this morning show North Carolina is failing to hit key markers of a strong economic recovery.

The unemployment rate remained steady at 5.9 percent in August, 0.1 percentage points below where the state unemployment rate was one year ago. The state experienced a slower decline than the nation, with a 0.4 percentage point drop.

Importantly, the unemployment rate does not capture the people remaining outside of the labor market due to a lack of employment opportunities. The state’s unemployment rate would be higher than 10 percent if one considers these missing workers.

A deeper assessment of the labor market trends beyond the unemployment rate in the August data include: Read More

NC Budget and Tax Center

A provision in the budget will, if enacted, will change the way sales tax is distributed. The budget creates a new pot of $84.8 million to be distributed to county and municipal governments for economic development, public education, and community college purposes.

Similar Senate proposals earlier this session met a frosty reception in the House and a promise from Governor McCrory to veto any budget that included such a move. On the surface, what’s in the budget looks very different from earlier proposals, and there are important distinctions, but the cumulative impact is actually quite similar to what we have already seen.

Before getting into the details on how the new system would work, a few top-level points should be underscored:

  • It is good to discuss how we can help struggling local communities to meet the economic and educational challenges that they face: This proposal is rooted in a very real fact. Many local communities, particularly in rural North Carolina, are strapped. Regardless of what you think about the proposals floated this session, it is good to see the legislative leaders acknowledging that many local communities don’t have the resources to build a strong economy or provide a sound education.
  • This proposal won’t fix the economic problems in rural North Carolina: None of the proposals to date would generate enough revenue to meet the economic and educational challenges that many communities face. In fact, the legislature has contributed to the problem in recent years by limiting how local governments can raise funds and by cutting back on what the state passes along to the local level. The budget proposal would set aside almost $85 million for suburban and rural counties, which isn’t chump change, but still not enough to make up for years of under-investment.

The actual budget mechanism for shifting funds around is a bit complicated, and we won’t know the real effect for some time, but the cumulative impact is likely to be similar to proposals we’ve seen already: Read More