NC Budget and Tax Center

A half dozen economic challenges that tax cuts at the top don’t fix

North Carolina legislative leaders are once again debating the value to our economy and well-being of cutting taxes for the wealthy and big companies. The debate tends to remain constrained to the short-run evidence from 2013 to the present on various traditional economic indicators at the state level. My colleague Patrick McHugh has pointed out that a review of that data should lead us all to conclude that the tax cuts since 2013 have delivered no special boost to the state’s economy.

And yet, we should also be considering the opportunity cost of North Carolina’s tax cut experiment.

It has kept our state from addressing genuine economic challenges that public policy and public investment could make progress on in favor of a flawed economic theory that at worst exacerbates the challenges and undermines a pathway to better economic outcomes for all.

Here are just SIX of the economic challenges that North Carolina faces that are not addressed by tax cuts at the top or for big companies:

  1. Job growth is concentrated in just a handful of counties, leaving the rest of the state struggling with too few jobs for those who want to work and the need for infrastructure to connect people to the areas where jobs do exist. Tax cuts that focus on reducing the rate on corporate profits don’t target the small businesses and homegrown companies that are the primary job creators statewide and integral to the smaller communities across the state. Instead, these tax cuts are primarily delivered to shareholders, many of whom do not even reside in North Carolina. At the same time, tax cuts drain the state of revenue that could provide dollars to local governments and regions to connect each community to where the jobs are.
  2. Income inequality continues to rise across the country and in North Carolina. Since the recovery began in 2009, until the last available data in 2015, the top 1 percent in North Carolina have captured more than all of the income growth. How is such a thing possible? The answer: When the income of the bottom 99 percent of North Carolinians actually declines over the same period. As has been well documented in the academic literature, there is no consensus that tax cuts for the highest income taxpayers will lead to new job creation.   Tax cuts at the top have made worse the concentration of income.
  3. The job growth that is happening isn’t paving the way to the middle class for majority of North Carolina workers and isn’t strong enough to accelerate wage growth for all. The quality of jobs that get created in an economy matter for the ability of those jobs to improve well-being. When jobs pay too little for people to make ends meet or make it difficult to move up the economic ladder, the ability to reach our economic stride is blocked. Read more
Education, Higher Ed, NC Budget and Tax Center

Reaching our state’s educational attainment goal

At this time of year, graduation stories are ever-present, yet their broader meaning to the strength of our economy is less discussed, as are the real barriers to completion that many young people face.

The research is clear that states with large numbers of bachelor’s degree holders have higher median wage levels than other states, according to the Economic Policy Institute. An advanced education also helps make workers more upwardly mobile in North Carolina. The Working Poor Families Project reports that the median earned income for someone with a bachelor’s degree is $18,000 higher than for someone with only a high school diploma.

Recognizing these real economic and community benefits, state leaders through the myFutureNC commission have set a post-secondary attainment goal that by 2030, two-thirds of North Carolinians aged 25 to 44  will hold a post-secondary degree, with a commitment to ensure that workers are acquiring skills and credentials that align with the goals of the state.

One overlooked source of people who can help North Carolina reach its goal are the Dreamers who have been educated here in North Carolina and are blocked from a pathway to post-secondary attainment due to their arrival to this country without documentation, as well as the lack of a tuition equity policy in our state.  Dreamers seeking to attend college in North Carolina are forced to pay out-of-state tuition – often 300 percent higher than the in-state tuition their peers pay – despite having spent their childhoods enrolled in North Carolina schools. In recognition of the inequity this creates, 21 states across the country have set up policies that recognize the investment that young people have in their educational futures and that communities have made in their education to date.

Estimates based on new data from the Migration Policy Institute suggest that, in North Carolina, an expanded tuition equity policy could benefit at least 1,470 graduates each year.

In a brief we released earlier today, Lissette Guerrero looks at the already significant economic contributions of all foreign-born workers and notes the critical role that post-secondary attainment and access to skills training for adult workers could provide in further boosting the economic and community contributions of these workers.

Indeed, as we have written about in the past on the topic of tuition equity, tuition equity can improve educational opportunities for young people in North Carolina and in turn boost employment outcomes and the productivity and growth of industries and the broader economy.

Tuition equity led to a 31 percent increase in college enrollment for undocumented students and a 33 percent increase in the proportion of Mexican young adults with a college degree in the states that adopted the policy. In addition, the average high school dropout rate decreased by 7 percentage points—from 42 percent to 35 percent—in states with tuition equity.

As yesterday’s Undocugraduation event demonstrated, the potential of young Dreamers is vast and important and to continue to block these youth from accessing post-secondary education would  put that potential to waste.

NC Budget and Tax Center

April labor market data confirm NC job growth is still unexceptional

The data released last Friday by the Bureau of Labor Statistics affirms the message delivered on the Senate floor last week by some lawmakers. North Carolina has not experienced a surge in employment nor is the state’s level of employment in a better position compared to historic levels. The tax cut experiment since 2013 has failed and due to the loss in the ability to fund foundational investments to a strong economy—health and well-being of families, education of children and the workforce, infrastructure in communities and regional connections—it is likely to hold us back from reaching our full economic potential

As noted on the Budget & Tax Center’s labor market update for April 2019, year over year job growth was just 1.6 percent, below the national average of 1.8 percent. North Carolina’s employment growth remains in line with regional neighbors and has not achieved notable acceleration from tax cuts.

The state’s unemployment rate has remained steady over the past year, hovering around four percent. Unlike the recent trend nationally, North Carolina’s labor force continues to grow albeit slower than the working age population. This is likely due to the reality that there are still too few jobs for those who are looking for work.

North Carolina’s employment to population levels remain below historic levels and below the national average as does our labor force participation rate. North Carolina needs to create 16,000 jobs each month to get back to pre-Recession employment levels in three years.  While clearly getting back to that level sooner should be the goal, the month over month change in employed persons has not hit that 16,000 threshold since January 2018.

 

Commentary, NC Budget and Tax Center

Fifteen great ideas that were lost in the legislature’s crossover deadline shuffle

The North Carolina General Assembly passed its self-imposed “crossover” deadline last week — the date by which many bills must be approved by at least one house to remain eligible for final passage this session. While the crossover rule is more of a guideline than a hard and fast requirement and is regularly ignored by legislative leaders, one can, by surveying the aftermath, get a good indicator of the priorities of legislative leaders and where the session is headed.

Unfortunately, but not surprisingly, this year’s deadline passed without consideration of a raft of excellent proposals that would have helped advance economic opportunity in our state. Here are 15 of those proposals that were lost in the crossover shuffle:

HB 46, Economic Security Act of 2019 — Sponsored by Representatives Fisher and Harrison, this bill was intended to increase the economic security of working North Carolinians. The bill would have increased the state minimum wage and tipped minimum wage, eliminated gender-based discrimination in pay, required employers to provide paid sick and family medical leave, attacked the state’s wage theft crisis, repealed collective bargaining restrictions for public employees, enacted a state-level Earned Income Tax Credit and Child Tax Credit, and enacted a “ban the box” provision in order to assure that job applicants with criminal records get a better opportunity to enter the workforce.

HB 5/SB 3, Close the Medicaid Coverage Gap — With this proposal, lawmakers in both houses sought to expand Medicaid to close the coverage gap for the 500,000 uninsured North Carolinians who lack adequate access to health care due to their lack of health insurance coverage.

HB 968, Local Government Inflation-Adjusted Minimum Wage — Representatives Farmer-Butterfield and Smith sponsored this bill to provide an inflation-adjusted living wage for local government employees, in order to ensure that they can afford to continue their work in the public sector.

HB 762, Nutritional Assistance for Employment Deserts — Representatives Queen, Turner, Ager, and Gailliard sponsored this bill with the intention of increasing access to food assistance for struggling job seekers. The bill would have allowed for a waiver of the time limits associated with the SNAP able-bodied adult employment requirements. With such a change, able-bodied adults would be able to continue to receive food assistance despite work requirements if they live and are seeking employment in an economically-depressed locale where a lack of available jobs makes the state’s current three-month time limit to find work prohibitive.

HB 946, Free Lunch for Some Students/Stop Lunch Shame — With this bill, Representatives Brockman, and Horn sought to appropriate $5 million to pay for the portion of school lunch not covered by federal funds for those students who are eligible for reduced priced lunch. The bill also requires schools to direct any communications about meal debt to parents rather than children, and cease any behavior that identifies or stigmatizes children who cannot afford a school meal or owe a meal debt.

HB 947, Free Breakfast and Lunch in K-12 Public Schools — Representatives Brockman, Quick, and Autry introduced a similar bill to appropriate funds to provide breakfast and lunch at no cost to students of the public school system.

HB 319, In-State Tuition Equity — Representatives Meyer, Fisher, Harrison, and Brockman sponsored this bill with the intention of increasing educational and future employment opportunities for all North Carolina youth. The bill would have extended the in-state tuition  rate for public colleges and universities to immigrant youth, regardless of immigration status, who attended North Carolina schools for at least two consecutive years or received a high school diploma from a North Carolina high school.    Read more

NC Budget and Tax Center

State-level tax credits could help N.C. reduce child poverty

In North Carolina, 43 percent of children of all races live in poor or low-income homes. Respectively, 64 percent of N.C.’s Black and Hispanic/Latinx children live in poor or low-income households. Experiencing poverty during childhood has lifelong implications for a person’s physical and mental health, exposure to violence, educational attainment, and future financial security. Tax credits for working families, like the Child Tax Credit, are known to improve a child’s immediate and long-term well-being and access to opportunity.

Expanding state-level Child Tax Credits has the potential to reduce child poverty in North Carolina by 44 percent, while reducing deep child poverty in our state by 56 percent. That is equivalent to lifting 138,000 North Carolina children out of poverty, and 58,000 children out of deep poverty.

Unfortunately, the Child Tax Credit does not currently reach about one-third of the families and children at the federal level despite recent changes to the federal Child Tax Credit under the Tax Cuts and Job Act because they are part of households that earn too little to claim the full credit.

A new report from the Institute on Taxation and Economic Policy finds that states can both decrease childhood poverty and repair tax code inequities by filling in gaps left by the federal credit. In many states, including North Carolina, the poor and low-income residents pay a larger share of their income toward taxes than the state’s wealthiest residents. Read more