NC Budget and Tax Center

NC Budget and Tax Center

New analysis from the Economic Policy Institute on the performance of wages across the distribution in 2014 finds that with few exceptions inflation-adjusted wages fell or stagnated for most groups. This isn’t anything new as there has been a long-term trend of wage stagnation that has meant the majority of workers are struggling to make ends meet even as they are contributing to grow the economy.

What is new and important from this analysis is what happened for wage earners at the bottom end of the wage scale. Workers in the 10th percentile saw their wages increase on an hourly basis by 11 cents or by 1.3 percent. The authors attribute this increase to the series of state-level minimum wage increases that have occurred in states in 2014 and which have bene proven to lift wages particularly for those at the bottom of the wage distribution. It turns out that nearly half of the country’s workforce lived in states where the minimum wage was increased in 2014.

For those states that haven’t raised the minimum wage, here is some further evidence of the real benefit of doing so. As the report author notes:

The great news in this story is that policy can actually affect the labor market. And, it is imperative that we use all the policy levers at our disposal to help rejuvenate the economy to create jobs and build stronger income growth for the 99%.

To read the full report, click here.

NC Budget and Tax Center

State lawmakers are targeting cash-strapped homeowners as they continue to pursue tax changes that would shift even more of the tax load to low- and middle-income taxpayers, while preserving tax benefits that have largely flowed to the wealthy and profitable corporations.

Legislation approved by the state Senate (Senate Bill 20) would require homeowners to pay state income tax on mortgage debt forgiven by lenders. Meanwhile, financial institutions that provide such consumer relief are allowed to deduct the expense as a tax write-off.

The proposal would undermine a key element of North Carolina’s recovery from the nationwide housing crisis that fueled the Great Recession. In the wake of the crisis, a number of financial institutions  agreed to  settlements that provide consumers relief for unaffordable mortgages. This often meant reducing the amount of principal debt they owed on their mortgages to make them more affordable and lessen the likelihood of foreclosure. Furthermore, the 49-state National Mortgage Settlement encourages mortgage servicers to provide such relief to distressed borrowers affected by the housing crisis.

The goal of these settlements is to ensure that homeowners who were preyed upon by unethical lenders do not fall into the financial tailspin that foreclosure often creates. The tax change proposed by the Senate would require cash-strapped homeowners who have already suffered from the disastrous housing crisis and economic downturn to report this debt forgiveness as income, even though no actual cash is provided to the homeowners.

This could deter families from accepting bank offers to modify their mortgage loans because they cannot afford to pay taxes on the amount of relief they get. Distressed homeowners seeking to stabilize their finances and rebuild in the wake of the housing crisis would face a major setback. Read More

NC Budget and Tax Center

Yesterday, Lawrence Mishel from the Economic Policy Institute made the compelling case that policymakers have missed the mark by focusing on tax levels rather than wage stagnation in their pursuit of improving growth rates and the economic well-being of the majority of Americans.  As Mishel points out:

Wage stagnation is a decades-long phenomenon. Between 1979 and 2014, while the gross domestic product grew 150 percent and productivity grew 75 percent, the inflation-adjusted hourly wage of the median worker rose just 5.6 percent — less than 0.2 percent a year. And since 2002, the bottom 80 percent of wage earners, including both male and female college graduates, have actually seen their wages stagnate or fall.

At the same time, taxation does not explain why middle-income families are having a harder time making ends meet, even as they increase their education and become ever more productive. According to the latest Congressional Budget Office data, the middle 60 percent of families paid just 3.2 percent of their income in federal income taxes in 2011, less than half what they paid in 1979.

Mishel goes on to detail a policy agenda that is far better targeted than tax cuts for delivering benefits to the majority of American workers and the broader economy.  This agenda includes some familiar proposals also appropriate for state policymakers: addressing wage theft and misclassification, raising the minimum wage and protecting workers rights to collectively bargain.  It also includes important macro-economic and trade policy choices like stopping the offshoring of jobs through trade deals like the Trans-Pacific Partnership and ensuring the Federal Reserve holds interest rates down until wage growth is more robust.

Again in Mishel’s own words:

Contrary to conventional wisdom, wage stagnation is not a result of forces beyond our control. It is a result of a policy regime that has undercut the individual and collective bargaining power of most workers. Because wage stagnation was caused by policy, it can be reversed by policy, too.

NC Budget and Tax Center

The House is poised to to introduce an “economic development” bill that they claim will boost the economy, but almost certainly will fail to provide real solutions to the lack of available jobs and long-term economic mobility needed by North Carolinians. While the full details of the bill have not been released, reports suggest it will include more give-aways to large corporations that will do little to change North Carolina’s economic vitality. Signals to date indicate that the bill will expand corporate incentives and give large multi-state companies another big tax break. We’ve already read this story before, and it doesn’t end well for many small businesses, struggling rural communities, or workers who have not seen a raise in years. Any new proposals should be carefully considered, but old ideas that have already proven inadequate won’t magically fix what ails the North Carolina economy.

Certainly, North Carolina’s labor market could use the support of sound public policies that could strengthen the recovery and ensure that it is delivering broad benefits to all North Carolinians not just a select few. The state’s job deficit stands at more than 400,000 jobs needed to provide employment to all who want to work, the number of unemployed people in the state remains elevated relative to pre-recession levels and poverty has not come down nor have wages grown as the economy has recovered.  There is a long way still for North Carolina to go in addressing the economic damage of the Great Recession, ensuring all communities enjoy a recovery and that all who want to work can and can support their families doing so.

At this critical moment then public policies should not be blunt instruments but instead reflect the real economic challenges facing North Carolina and address them head on. Here are some of the criteria that we will use to assess the bill when it is available: Read More

NC Budget and Tax Center

The lessons of the past should help us make better choices in the future. North Carolina’s history of unemployment insurance changes provide one clear lesson:  cutting taxes for employers in good times can lead to serious harm in the long-term. A bill moving to the floor tomorrow that makes changes to the unemployment insurance system could  ensure the mistakes of the past aren’t made again by including provisions that require the Trust Fund to truly reach solvency before cutting employers taxes.

It was afterall the lack of adequate funds in the state Trust Fund before 2007 was due to tax cuts for employers that happened in good times. This series of tax cuts for employers in the 1990s—detailed here—meant the Trust Fund could not meet its obligations to pay unemployment insurance to workers who lost their job through no fault of their own during the historic job losses of the Great Recession. While the unemployment insurance Trust Fund appears ready to pay back  funds borrowed, it has been able to do so largely through drastic cuts to unemployment insurance for workers that make it more difficult for jobless workers to keep looking for work and support their families’ most basic needs.  Such cuts in a downturn and slow recovery also undermine the systems’ function in the economy as a stabilizing force in a downturn.

And the repayment of the debt is just the first step in getting the fund solvent. By every measure of solvency, North Carolina still has a long way to go to be healthy enough to weather another downturn.

Now as the Trust Fund debt is nearing repayment and employer contributions will begin to strengthen the fund ahead of future downturns, it is critical that policymakers reduce the likelihood that the state will need to borrow and that is adequate to provide unemployment insurance payments to jobless North Carolinians. Here are two provisions that policymakers should include to take a more fiscally responsible approach to the unemployment insurance Trust Fund. Read More