Commentary, NC Budget and Tax Center

Learn the facts that proponents of more tax cuts often ignore

As the Senate passed yet another round of tax cuts (which would largely go to wealthy people and companies), proponents tried to claim that past tax slashing has fixed our economic wagon. Not so fast. Hard numbers and lived experience tell us that several years of tax cuts have not addressed North Carolina’s most pressing economic problems.

A job does not guarantee escape from poverty or that people can afford the basic necessities.

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NC Budget and Tax Center, Trump Administration

Five major ways that the Trump budget would hurt rural North Carolina

Cameron, NC. Photo by Gerry Dincher.

If your budget is a reflection of your priorities, it’s clear that President Trump does not prioritize the well-being of rural North Carolina and connecting more people to opportunity.

1. The plan cuts 21% of USDA, which is critical to rural North Carolina.

Trump’s plan proposes a cut of more than 21 percent to the USDA—a $4.7 billion dollar reduction to its funding of various initiatives that support the development of rural America and the food systems that support our country. This would directly harm rural communities and agriculture across the heart of North Carolina. Moreover, Trump’s budget would decimate rural infrastructure, even as communities seek to remain attractive to business and residents, new and old.

2. Budget threatens rural development dollars that are key to thriving rural communities.

More than 3 million North Carolinians live in rural regions of the state. Since 2009, the Old North State received $12 billion dollars in rural development funding from the USDA. From these awards, North Carolina received 54,747 Single-Family Housing Loan Guarantees totaling $7.5 billion dollars, 62 Electric Direct Loans and Loans Guarantees ($1.5 billion dollars), 3,537 rental assistance cases ($500 million dollars) and 372 Community Facilities Direct Loans ($710 million dollars), to name just four programs. According to Trump’s budget, these programs would be threatened with cuts. The Transportation Investment Generating Economic Recovery is being completely eliminated, which represents 21 percent of grant dollars to rural and tribal communities. Read more

NC Budget and Tax Center

Today is #EqualPayDay. Here’s what that means for women.

Today is #EqualPayDay. Women are the primary breadwinners for more than half a million North Carolina families, but thanks to a persistent wage gap, it’s generally harder for these families to make ends meet. Investing in good jobs in every community can go some way to closing the wage gap, but that won’t be enough. The wage gap will persist as long as we continue to ignore policy choices that specifically address it, and that will leave many North Carolinians and their families without full economic security.

NC Budget and Tax Center

New analysis: Most of NC senate’s “middle class” tax cut would actually flow to the wealthy

Last week, the North Carolina Senate Finance Committee approved Senate Bill 325 – sponsored by the chairs of the committee – that supposedly cuts taxes by nearly $1 billion. Proponents of the bill claim that the tax cuts are targeted to middle-income taxpayers, but this is not the case. The majority of the net benefits for the tax cuts will go to the highest income earners in the state. Simply put, this bill is not a billion dollar middle class tax cut, despite the title of the bill. This is a false claim that becomes apparent upon a deeper analysis of the bill.

For starters, the billion dollar tax cut claim touted by proponents is nearly 20 percent off the mark. The General Assembly’s Fiscal Research Division (FRD) highlights that the annual cost of the tax plan grows to be around $839 million over the initial five years. Moreover, tax cuts for businesses account for 20 percent of that total cost estimate. While one might chop this up to a simple rounding approximation, the magnitude of this rounding up on something of such importance would likely garner some form of reprimand in the business and finance world in which billion dollar deals require a more precise understanding of the numbers.

During last week’s meeting, bill sponsors and FRD staff were unable, and at times unwilling, to answer critical questions related to the tax plan. Limitations to the analytical software used by FRD were noted, which limited staff’s ability to answer key questions about who benefits and the cumulative losses of tax cuts over the years.

The limited analysis produced by FRD allows proponents of SB 325 to falsely proclaim that the tax plan largely benefits middle income taxpayers. Typically, FRD arbitrarily selects income levels and often deploys just taxpayer scenarios to highlight the impact of proposed tax changes. This approach doesn’t allow policymakers or the public to understand the population-wide effects and the distribution across all taxpayers.

BTC’s analysis of SB 325 uses a more robust model developed by the Institute on Taxation and Economic Policy (ITEP), a non-profit, non-partisan organization. ITEP’s microsimulation tax model calculates tax revenue yield and incidence, by income group, of federal, state and local taxes. The model is used in states across the country to analyze state tax proposals and to assess the impact of tax policies on issues of public concern. ITEP’s model segments North Carolina taxpayers into five equally split income groups based on actual tax returns and total estimated incomes (and breaks down the top 20 percent of taxpayers since income is so concentrated at the top of the spectrum). FRD informing lawmakers that a hypothetical taxpayer with adjusted gross income of $200,000 would get a tax cut under the plan provides no insight into the distributional impact of the tax plan, such as where that taxpayer falls along the income spectrum (certainly not in the middle). The ITEP model, however, highlights that this hypothetical taxpayer is closer to the top 10 percent of income earners in the state. Read more

NC Budget and Tax Center

Why cutting taxes for business again makes no sense

When businesses pay their share of taxes, North Carolina is able to invest in the things that build thriving communities and a prosperous economy – things like good schools, roads, public health and a clean environment.

The Senate’s tax plan, Senate Bill 325, includes a tax cut for businesses that goes against this proven principle.  There are four reasons why this plan will move our state backwards.

  1. North Carolina’s corporate income tax rate is already the lowest in the country.

North Carolina’s corporate income tax rate, now 3 percent, is the lowest in the country among 32 states with a flat corporate income tax rate, and the states with graduated corporate income taxes all have top rates above 3 percent as well. (Four other states – Nevada, Ohio, Texas and Washington – do not have a corporate income tax; they impose a gross receipts tax – which is a tax on the total gross revenues of a company).

On January 1st of this year, North Carolina reduced the corporate income tax rate from 4 to 3 percent which will reduce revenue by $500 million when in effect for a full fiscal year.  This was an automatic reduction built into the 2013 tax changes that is happening even as enrollment costs associated with public schools and universities are increasing and health care costs for retirees are rising.  It happens as the state struggles to rebuild Eastern North Carolina communities post-Hurricane Matthew and cope with the implications of the increasing likelihood that Congress will shift more costs to states.

  1. Another corporate tax cut will not lead to meaningful economic growth, research indicates.

The proposed corporate tax cut will not provide the needed local boost to address North Carolina’s economic challenges or catalyze greater job growth where it is needed.  That is because, as research has found, the impact on corporate investment of a small cut in the corporate tax rate would not only be small but require years to fully take effect.  The consensus of that research is that even a very large, 10 percent reduction in total state and local taxes paid by businesses – much larger than the reduction in corporate income taxes alone in the Senate bill – is likely to increase economic output and jobs by only about 2 percent before accounting for any offsetting negative impact on the provision of public services that businesses rely on such as efficiently run courts and high quality public schools that help build an educated and trained workforce.

Additionally, there is no reason to believe that tax cuts going to big multistate corporations will benefit North Carolina’s economy: businesses may choose instead to use the money to finance out-of-state investments or distribute these additional dollars in the form of dividends to their shareholders who mostly live out of state. Estimates by the Institute on Taxation and Economic Policy suggest that just 18 percent of the corporate income tax rate cut would stay with residents of North Carolina.

  1. Cutting income taxes on small business won’t do much for North Carolina’s economy, either.

The Senate bill proposes an additional cut in the personal income tax rate, sometimes justified on the grounds that this will encourage job creation by small businesses that pay tax on their profits through the personal income tax rather than the corporate income tax.  But Kansas completely eliminated its personal income taxes on these businesses and the rate of small business startups actually declined in the following two years. Read more