NC Budget and Tax Center

3 Reasons Why the U.S. Senate’s Tax Plan is Bad for North Carolina (Infographic)

If you are trying to get your head wrapped around what the U.S. Senate’s Tax Plan will mean for North Carolina families, take a look at this newly released infographic from our colleagues the NC Budget & Tax Center. (For a full-size pdf copy you can download or share on social media, please click on the image below.)

NC Budget and Tax Center

Memo to Tillis and Burr: Proposed “trigger” in Senate tax bill is flawed, inadequate, and unrealistic

The U.S. Senate is currently debating its tax plan and rushing to vote on it by the end of this week with the hopes of getting tax legislation to President Trump by the end of the year.

One new and concerning development is that some Republicans in the Senate are considering adding a “trigger” to the bill that would reportedly activate tax increases in 2022 if the promised positive economic effects of the bill have not materialized.

It is a sign that legislators are unclear of what the future will hold as the plan is implemented and the full impact of each detail is understood.  Senator Tillis and Senator Burr should be very concerned about this development and oppose moving forward on a major tax overhaul that provides no protections from myriad harm for North Carolinians and is still not fully understood.

According to a new report, the trigger mechanism is deeply flawed and cannot undo the harmful fiscal impact of the bill’s unfinanced tax cuts. The Center on Budget and Policy Priorities points out:

“The details about the trigger mechanism are still emerging.  Under one reported version, corporate tax increases would take effect if revenues in 2022 are below a “target” — the amount that the tax code is expected to generate that year under the tax laws in effect today (that is, before tax cuts take effect), minus the cost of extending a business tax break now in effect that is due to expire under current law.   Under another version, the tax increases would be triggered if economic growth fell below a target rate.  Regardless of the precise criteria, such a trigger mechanism is unlikely to result in tax increases going into effect.

Moreover, the triggered tax increases are limited to $350 billion over a decade, far less than the estimated revenue loss from the pending tax bill.  Thus, even if the trigger took effect, the tax cuts still would fall far short of the standard of not increasing the deficit that various Republican senators have argued the tax bill will meet.”

The report is blunt by concluding that:

“If policymakers are truly concerned about the harmful impact of higher deficits and debt, they should address the problem head on: they should identify the revenues they will raise or the spending they will cut to offset the cost of tax cuts they evidently view as the nation’s highest priority.  That’s how responsible major legislation has been designed in the past.  The landmark 1986 tax reform legislation, for example, raised taxes on some businesses and individuals and cut taxes for others to create a more efficient tax code, without the large revenue losses in the current tax bill.

‘Trigger’ proposals, on the other hand, let policymakers sidestep the hard choices and still try to claim the mantle of fiscal responsibility.”

It is worth noting that Republican Senator Ted Cruz of Texas has said he’s working on a trigger provision that would apply two ways and bring additional cuts if there’s robust growth.

Luis A. Toledo is a Public Policy Analyst for the Budget & Tax Center, a project of the North Carolina Justice Center.

NC Budget and Tax Center

Statement on U.S. Senate Tax Plan from Alexandra Sirota, Budget & Tax Center Director

The tax plan, passed today out of committee, now moves to the U.S. Senate floor. It will deliver the greatest benefit to the rich, raise taxes on many middle- and low-income taxpayers, and grow the federal deficit.  The harm to North Carolina will be felt in every community as an estimated 400,000 North Carolinians lose health insurance and investments are cut that connect people to jobs, connect businesses to markets, and strengthen our economy.  North Carolina’s Congressional delegation must slow down their rush to pass an overhaul of the tax code that benefits so few and ensure that federal tax policy is not paving the way for more harm to our state. 

NC Budget and Tax Center

Senate tax bill would eliminate programs for farmers, crime victims, the elderly, and children

In this season of giving, the U.S Senate is rushing to pass a tax bill next week that would overwhelmingly benefit corporations and the richest households.

If passed, this tax plan would not only raise the tax load on millions of low- and middle-income families, it would also mean the elimination of vital programs that help many Americans get by every day.  The reason: Math.

By increasing the U.S deficit by more than $1.5 trillion over the next ten years, Congress would have to reduce spending in fiscal year 2018 alone by a total of $136 billion due to spending rules. To put this in perspective, the Congressional Budget Office (CBO) has already estimated that this tax bill would result in $25 billion in automatic cuts to Medicare in 2018.

Among the programs that could be eliminated entirely based on analysis by the Center for American Progress are:

  • “Farm Price-Support Programs. This program funds the Commodity Credit Corporation Fund, which stabilizes, supports, and protects farm income and prices; helps maintain adequate and balanced supplies of agricultural commodities; and facilitates the distribution of commodities in an orderly way.
  • Farm Security and Rural Investment Programs. These programs provide funding for critical conservation efforts on private lands, including critical wetlands, grasslands, forests, and farm and ranch lands.
  • Funds for Strengthening Markets, Income, and Supply. This program encourages the exportation of agricultural commodities and products; encourages domestic consumption of agricultural products; and re-establishes farmers’ purchasing power by making payments in connection with the normal production of any agricultural commodity for domestic consumption.
  • Commodity Assistance Program. This program provides food donations to help the elderly and low-income populations, among others.
  • Vocational Rehabilitation Basic State Grants. This program provides grants to assist states in running statewide vocational rehabilitation programs for people with disabilities in order to help them prepare for, secure, regain, or retain The program is critical to state agencies’ ability to work with disabled individuals to prepare for and engage in competitive and integrated employment and achieve economic self-sufficiency.
  • Health Care Fraud and Abuse Control Program. This program combats fraud and abuse in federal health care spending.
  • Social Services Block Grant. This funding provides states with flexible resources to help with human services such as child care, foster care, elder abuse prevention, Meals on Wheels, and more.
  • Promoting Safe and Stable Families Program. This program helps states keep children safe from maltreatment; prevents the unneeded separation of children from their families; makes the quality of care and service to children and their families better; and helps ensure permanent living situations for foster children.
  • Higher Education Programs. This provides funding for historically black colleges and universities, Hispanic-serving institutions, and tribal colleges to better serve students and increase capacity. It also includes grants to help the children of service members who lost their lives in Iraq or Afghanistan to afford college.
  • Affordable Housing Program. This program supports federal home loan bank contributions to subsidize affordable housing and homeownership.
  • Crime Victims Fund. Funding is used to support state programs that benefit crime victims, including efforts to combat violence against women, human trafficking, and child abuse and neglect.”

Luis A. Toledo is a Public Policy Analyst for the Budget & Tax Center, a project of the North Carolina Justice Center.

Commentary, NC Budget and Tax Center

Republican tax plan could fuel offshoring and automation, killing manufacturing jobs

In the dog days of summer in 2003, people in Kannapolis and neighboring towns northeast of Charlotte got news that over four thousand people working for Pillowtex were losing their jobs. Several hundred more in Concord got the same news, along with other communities outside of North Carolina. It was the largest single-day layoff in North Carolina history, and an event that had a lot to do with the enactment of NAFTA.

Some of that painful episode, and many like it across North Carolina, could be repeated if current Republican tax plans become law.

Two provisions of Republican tax plans currently being considered in Congress could accelerate offshoring and automation, the two chief reasons that manufacturing employment in the United States has been on the decline for more than a generation.

First, a proposal currently being debated would create new incentives to keep or move manufacturing overseas. The shift to a “territorial” tax system would allow multinational corporations pay little or no corporate taxes on profits realized outside the U.S., a move which could fuel another wave of offshoring, cut the legs out from underneath purely domestic manufacturers, and ultimately kill manufacturing jobs. The existing tax code already allows companies to avoid taxation by keeping profits outside of the United States, but some current proposals could make the problem even worse.

Companies looking to avoid the U.S. corporate income tax could move or keep their manufacturing operations out of the country, raising the specter of another wave of offshoring like that which followed the implementation of the NAFTA. Some versions of the bill include language meant to limit companies’ ability to engage in this type of behavior, but many experts think the provisions are not nearly strong enough.

While this provision has not received a great deal of media attention yet, it worries both academic experts and leaders from manufacturing states that understand the threat it poses. The Congressional Research Service has raised this concern citing both economic theory and empirical evidence that adopting a territorial system in the United State could push investment out of the country.

Republican Senator Ron Johnson from Wisconsin has also expressed his misgivings, saying that “with a territorial system, there will be a real incentive to keep manufacturing overseas.” Senator Johnson’s perspective is all the more striking given that he often favors lower taxes but has thus far refused to support the current tax plan because it lavishes so many tax advantages on multinational corporations to the detriment of local manufacturing firms.

All of that should be worrisome enough to manufacturing communities in North Carolina that have still not recovered from previous waves of offshoring, but the trouble might not stop there.

Another arcane provision, known as “full expensing” could accelerate the process of replacing people with machines on shop floors. Automation is nothing new in manufacturing, and has allowed the United States to remain competitive in many sectors even when going up against low wages abroad, but the simple fact is that it costs jobs in the short-run.

Full expensing allows companies to deduct the full value of new machinery in the year in which the investment is made, rather than spreading the deduction over years as the equipment depreciates in value. This accounting trick would make the tax advantages of buying equipment far greater, creating even more pressure to invest in machines instead of people, potentially accelerating the pace of automation in manufacturing and other industries.

Territorial taxation and full expensing are not the only worrisome tax ideas on offer in Washington these days, but they should be particularly alarming to communities in North Carolina that rely on manufacturing.

We should be looking to strengthen domestic manufacturing, but this specific spread of tax cuts for multinational corporations isn’t the answer. Several pieces of the current tax plan could simply add weight to the forces that have slammed manufacturing communities for decades, and we know how that turns out.