NC Budget and Tax Center

On taxes there is a different set of rules that helps the rich, but not the working class

Tax revenues support public investments and therefore are the cornerstones of effective public structures and prosperous communities. In order for our tax structure to work it must be fair across income levels and tax enforcement must be applied consistently. Unfortunately that is not the case as it is clear that when it comes to taxes the richest use a different set of rules while the working class continues to lose.

A new investigation by the New York Times has found that “President Trump participated in dubious tax schemes during the 1990s, including instances of outright fraud, that greatly increased the fortune he received from his parents.”

Here are some of the key findings of this investigation:

  • “President Trump received at least $413 million in today’s dollars from his father’s real estate empire, much of it through tax dodges in the 1990s”
  • “The president’s parents, Fred and Mary Trump, transferred well over $1 billion in wealth to their children, which could have produced a tax bill of at least $550 million under the 55 percent tax rate then imposed on gifts and inheritances. However, the Trumps paid a total of $52.2 million, or about 5 percent, tax records show.”
  • “In the late 1940s, Fred Trump obtained roughly $26 million in federal loans to build two of his largest developments. Records obtained by The Times reveal how he began to build or buy apartment buildings in Brooklyn and Queens and then gradually, without public trace, transfer ownership to his children through a web of partnerships and corporations.”

Findings like this must be called out and a statement by the Institute of Taxation and Economic Policy (ITEP) does exactly that by bluntly stating:

“The key takeaway from the New York Times article on Donald Trump’s family’s tax shenanigans is that the wealthy and powerful abide by a different set of rules than the rest of us. Not only does the tax system allow the wealthy to take advantage of legal loopholes, it also allows them to blur the line between legal avoidance and illegal tax evasion with little consequence.”

“Wealthy Americans should not be able to play by a different set of rules and avoid or evade their fair share of taxes. We need to reform the tax system to close the loopholes the wealthy use to avoid taxes and substantially increase funding to the IRS to ensure that the laws we do have are robustly enforced.”

Overall, these latest findings of how the richest are not paying their fair share and how the tax system consolidates their wealthy year after year are very concerning, especially considering that the federal tax law passed last year rigs the rules in favor of the rich even more. Indeed, President Trump pushed for a federal tax law last year that provides 50 percent of the benefits to the wealthiest 5 percent of Americans.

This law also provided a break that favors the wealthy as it doubled the amount of assets that can be left to heirs without triggering the estate tax from $11 million for a married couple to $22 million. Even prior to passage of the new law, only 0.2 percent of estates were taxed, which means reducing the estate tax only benefited the very wealthiest families even more. Furthermore, it is well established that recent tax code changes have provided major corporations with generous tax cuts.

As a country we must ensure everyone in America, regardless of their income level, has a good chance to succeed and thrive, because that is when our country is at its best. Having a different set of rules that simply helps the rich avoid accountability goes against that and sends the wrong message about what is right.

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

Education, Higher Ed, NC Budget and Tax Center

North Carolina’s cuts to higher education are shortchanging future generations

North Carolina’s inadequate public investment in higher education over the last decade has contributed to rising tuition prices, often leaving students with little choice but to take on more debt or give up on their dreams of going to college. The problem is especially serious for Black, Latinx, and low-income students.

North Carolina is one of 45 states that spent less per student in the 2018 school year than in 2008 – even as the economy and state budgets have returned to pre-recession levels, according to Unkept Promises: State Cuts to Higher Education Threaten Access and Equity, a new report from the Center on Budget and Policy Priorities (CBPP).

2008 – 2018 Cuts to Higher Education Funding (adjusted for inflation):

  • North Carolina Average: 18.6 percent per student or $2,357 per student
  • S. Average: 16 percent per student or $1,502 per student

Cuts to higher education have helped drive up the cost of attending public colleges and universities. Between 2008 and 2018, the average tuition at public four-year institutions in North Carolina grew by 45% or $2,293– outpacing the national average growth of 36 percent.

Americans’ slow income growth has worsened the situation. While the average tuition bill increased by 36 percent between 2008 and 2018, median incomes grew by just over 2 percent. Nationally, the average tuition at a four-year public college accounted for 16.5 percent of median household income in 2017, up from 14 percent in 2008.

In North Carolina, the costs of a college education represents 14 percent of median household income for all North Carolina families, 19 percent of median household income for Black North Carolina families and 18 percent of median household income for Latinx North Carolina families. Read more

NC Budget and Tax Center

New analysis: NC is not creating enough middle class jobs

In case you missed it the latest installment in the N.C. Budget and Tax Center’s Prosperity Watch series, economist Patrick McHugh reported some new and frustrating (if not terribly surprising) data regarding North Carolina’s increasingly divided economy this week. Here’s the post:

Middle-income jobs are essential to the long term health of a state’s economy, and North Carolina has not generated nearly enough of these opportunities during the current growth period. The lack of middle-income jobs is a national problem, but it is particularly acute in North Carolina, a trend that threatens to drive an economically damaging wedge between highly paid professional employees and everyone else.

Three of the industries that have formed the traditional bedrock of middle-income employment in North Carolina have lagged behind the nation, and our region, since the economy officially exited the Great Recession in July of 2009. Construction jobs have grown by 16.4 percent over that period in North Carolina, well below the 22.6 percent expansion in the South Atlantic and 22.4 percent nationwide. Education and Health employment has grown by more than 20 percent nationally and in our region, but North Carolina has only posted a 13.9 percent jobs gain in these industries. Manufacturing has been slow to grow across the country with an increase of only 9 percent nationwide and 9.9 percent in the South Atlantic, but North Carolina’s 7.9 percent employment gain has been significantly below even those relatively meager job gains.

The lack of middle income job creation is leading to an increasingly divided employment market, with excellent opportunities for highly trained professionals but few options that actually pay a living wage for everyone else. Emblematic of this divide, the two industries that have seen the fastest growth in North Carolina are Professional and Business services, which saw employment grow by 41.3 percent since the start of the recovery, and Leisure and Hospitality, which expanded by 27.6 percent. Jobs in the first industry generally pay very well, offer substantial benefits, and create opportunities for career growth, while positions in the latter industry typically come with none of these desirable qualities.

If these trends continue, with most of the growth clustered at the very top and the very bottom of the employment ladder, it will become increasingly difficult for people to work their way up from entry-level positions into jobs that can support a family. That kind of divide is not only bad for the majority of people who would become trapped in low-paying jobs, it will harm overall growth as more people lack the opportunities to maximize the economic value of their skills and energy.

NC Budget and Tax Center

State lawmakers’ response to Hurricane Florence is an inadequate first step

In this morning’s special session, the NC House and Senate both passed the Hurricane Florence Emergency Response Act. The storm, which hit the North Carolina coast on Sept. 14, resulted in 39 deaths, power losses for 880,000 people, over 5,200 emergency rescues and evacuations, more than 1,600 road closures, and the displacement of thousands.

The bill, which is a first step, appropriates a total of $56.5 million in funding to help communities recover. In addition to funding recovery efforts, the bill extends the voter registration period in impacted counties to Oct. 15, and states that Historically Underutilized Businesses should be prioritized vendors for recovery funding.

Although we do not yet have a total dollar figure on the amount of damage caused by the storm, the $56.5 million figure is clearly less than what is actually needed based on what we do know. It also fails to create certainty for North Carolina communities that the state will be willing to invest in their rebuilding efforts. The uncertainty that lingers over the eastern part of the state makes it difficult for families and business to plan their own rebuilding efforts. That certainty, that funding will be and is available to embark on projects to rebuild, is a clear lesson from disaster efforts in North Carolina and across the country.

Hurricane Matthew, another 500-year storm which hit the eastern part of North Carolina just two years ago, caused $2.4 billion in damage and $2 billion in lost economic activity. The General Assembly’s initial disaster recovery funding bill in 2016 was for $200.9 million. And, in fits and starts, they returned to commit dollars to the effort which made for uneven planning and deployment of funds that contributed to delays in rebuilding.

Of the $56.5 million dedicated to Florence relief, $6.5 million will go directly to the Department of Public Instruction in order to compensate school lunch employees who are hourly and lost wages due to school closures. This is an excellent use for disaster recovery funding. Getting money into the hands of workers, many of whom are low wage, will ensure that local economies have the ability to bounce back and that individuals are shielded from the double burden of losing property and wages.

The remaining $50 million in appropriation, however, is not designated. State lawmakers plan to use a significant portion of the remaining dollars as a state match for any federal disaster assistance they may receive. It is a requirement to secure the federal funds and it will just supplement federal commitments not address the gaps that federal commitments often present in rebuilding work.

So what does this mean for our neighbors?

It means that although lawmakers have built up a Rainy Day Fund of $2 billion, as well as leaving $500 million in revenues last year unappropriated, they will choose to spend a tiny amount of state dollars in helping hundreds of thousands of North Carolinians who have been displaced and whose lives have been turned upside down.

It seems that rather than leading, our leaders will sit and wait for the federal government to help while their constituents sit in shelters. If lawmakers should have learned anything from Hurricane Matthew, it’s that the federal government will not do their jobs for them. Just two years ago, after waiting for six months to hear from the Trump administration regarding a $930 million disaster relief request, North Carolina was told it would only receive $6.1 million.

We cannot wait. The families who are displaced, workers who are out of work, small businesses who are losing revenue, and farmers who have lost crops cannot wait.

Rather than waiting, we must commit the dollars that we have available now to build a robust plan for a resilient eastern North Carolina: a plan that recognizes the importance of a range of immediate service needs — from temporary housing to food access to legal services — and supports families, small businesses and farms to address their losses in housing, profits and product; a plan that focuses on making sure that everyone is served regardless of who they are, what language they speak or where they live and that services are accessible to people have been displaced and have limited resources; a plan that puts people at the center of planning and decision-making to strengthen the systems that monitor our water quality and environmental contaminants, encourage affordable housing development outside of floodplains, and build the institutional infrastructure to create thriving communities with good, quality jobs and sustainable businesses.

State lawmakers have the tools, the resources and know-how to lead a recovery that is not only adequate and equitable, but builds and invests in resilient communities that are stronger than ever before.

Brian Kennedy II is a Policy Analyst with the Budget & Tax Center, a project of the North Carolina Justice Center.

immigration, NC Budget and Tax Center, Trump Administration

Trump administration sets a historically low ceiling for refugee admissions

Last week, Secretary of State Mike Pompeo announced the maximum number of refugee admissions for the next fiscal year has been set at 30,000. Breaking even last year’s historic low, this ceiling cap sets a new low and further restricts humanitarian aid to a growing number of displaced people seeking safety from violence and persecution. This announcement is part of a series of efforts from the current Administration that seek to undermine the Refugee Resettlement Program and to create new roadblocks to many of the world’s most vulnerable who are attempting to flee serious persecution to start a new life in the United States.

Historically, the United States had demonstrated a strong commitment to refugee resettlement by successfully integrating refugees into communities across the country. This commitment resulted in strong contributions to the national economy and labor market. In 2015, refugees across the United States contributed $20.9 billion in state and federal taxes. This same year, refugees in North Carolina contributed almost $274 million in federal and state taxes while holding $831 million in spending power. These numbers demonstrate a glimpse of the positive impact immigrants have in local communities across the country.

Still, the current administration continues its devastating battle against immigrants. From incorporating a ban on refugee admissions and threatening programs such as DACA to gutting long-standing principles of asylum law and expanding family detention, this administration has weakened refugee and humanitarian policies, pulling the United States back from its historical commitment to strengthen human rights. In a time where 68.5 million people have been forcibly displaced by conflict and the number of refugees has reached 25.4 million, it is inexcusable to disregard the current humanitarian crisis and turn our back on vulnerable people living in danger.

Unfortunately, the real decline in refugee resettlement may be even more dramatic than the lower cap would indicate. The annual ceiling sets the maximum number of refugees allowed to legally enter the United States, but it does not require the country to accept a specific number of refugees. In the 2018 fiscal year, the United States had a historically low admittance cap set at 45,000, but it actually accepted less than 22,000 refugees. These figures demonstrate a strong likelihood of refugee admittance falling below the 30,000 cap during the coming 2019 fiscal year.

In a country whose moral and economic strength is rooted in welcoming people searching for a better life, these policy reversals should be seen for what they are: a violation of our history and a threat to our future.

Lissette Guerrero is an intern with the Budget & Tax Center and with Immigrant Refugee Rights, projects of the NC Justice Center.