NC Budget and Tax Center

NC Budget and Tax Center

Last week, Stephen Moore, an associate of Arthur Laffer and national consultant, penned an opinion piece in the Wall Street Journal making a claim totally unsupported by facts – that tax cuts are improving North Carolina’s economy.

Tax cuts that primarily benefit the wealthiest people and large, profitable corporations, coupled with the drastic reduction in the effectiveness of unemployment insurance to help those struggling to get by have not ushered in a stronger economy. Instead, North Carolina continues to experience a slow, uneven economic recovery buoyed only by national trends as the state backs away from the kinds of investments that are crucial to growth.

There is no link between the tax cuts and the revenue increase the state is experiencing this year. Instead, pundits like Stephen Moore and others in North Carolina, take simultaneously occurring conditions and claim a connection that doesn’t exist.  This would be like someone looking at the relationship between per capita cheese consumption and civil engineer doctorate awards and declaring that everyone should eat more cheese so we can produce more civil engineers.

What’s really happening is that state revenue is coming in above expectations because of the realization of capital gains and business income growth. It’s the same thing being seen in states that haven’t cut taxes (and one—California—that has actually raised taxes).BTC Job Growth from Recession Watch

Higher job growth rates and productivity are welcome signs in North Carolina. But it’s important to keep in mind our state’s economic performance is still below historic levels.  Take the change in employment, North Carolina’s job growth since the start of the last recession is well below where it should be relative to other similar time periods and that means we continue to struggle to repair the damage of the Great Recession.

Rather than helping the state’s economy, it’s becoming even clearer that the tax cuts hamper our ability to address the real challenges in our economy. For one thing, all income growth since the start of the recovery has gone to the top 1 percent of North Carolinians – those making more than $1 million a year. Average North Carolinians have seen their wages fall despite the official recovery. The jobs being created since the recovery are overwhelmingly work that pays too little to support a family and build a future. And, two thirds of the state’s counties have fewer people employed than before the Recession started.

Contrary to Stephen Moore’s hopes, there is no payoff from tax cuts in North Carolina. Instead, the state will struggle to rebuild and too many North Carolinians will struggle to get by because policymakers failed to realize that tax cuts are not an economic development strategy worthy of our state’s people and history.

NC Budget and Tax Center

This post is authored by Chris Hoene, Executive Director of the California Budget  & Policy Center. 

In November 2012, California voters approved Proposition 30, a constitutional amendment that increases personal income tax rates on very-high-income Californians through 2018 and raises the state’s sales tax rate by one-quarter cent through 2016. Governor Jerry Brown championed and campaigned for Proposition 30 after state policymakers’ made widespread and deep cuts to various state programs and services during and after the Great Recession. Confronted with ongoing state budget shortfalls, and the threat of additional cuts to education and other vital services, the Governor, other state leaders, and a broad coalition — encompassing educators, labor, health care providers, faith organizations, community groups, businesses, and others — backed Proposition 30’s temporary tax increases as a means to stabilizing the budget and ensuring adequate revenues to support public investments that would position the state for economic growth.

What has Proposition 30 meant for California? Since its passage, the state’s General Fund revenues have grown from $93 billion in 2012-13 to a projected $115 billion for 2015-16. This has been driven by a combination of economic growth and Proposition 30’s tax increases, but Proposition 30 alone raises approximately $8 billion for 2014-15 (the current fiscal year) and that figure is expected to be even higher in 2015-16. These new revenues have allowed the state to significantly reinvest in K-12 schools and community colleges. In 2011-12, the low point for state budget after the recession, the state’s commitment to schools and community colleges totaled $47.2 billion. For 2015-16, this commitment is projected to be $68.4 billion. Looking just at K-12 schools, the growth in state spending since 2011-12 amounts to an increase of more than $2,000 per student. California also has slowly begun to reinvest in its state university systems (the California State University and University of California), has created and invested in a new and stronger rainy day fund, and is paying down budgetary debts. Currently, the state is poised to enact its first-ever Earned Income Tax Credit (EITC) in 2015-16, a refundable tax credit targeted to the state’s lowest-income households. Read More

NC Budget and Tax Center

Last week, the North Carolina House of Representatives approved a $22.2 billion state budget plan, which is overall a modest step towards building an economy that works for all North Carolinians. The budget represents a 5-percent increase over current year spending and the highest level of investments since the official economic recovery began in 2009.Yet, the plan still falls short of pre-recession levels of investments, fails to replace years of harmful cuts, and does not reflect all that’s needed to foster inclusive economic growth.

Unfortunately it is now clear—based on newly released spending targets—that the Senate is poised to severely limit spending rather than follow the House’s lead on making modest improvements. Low spending targets may be linked to the Senate leadership’s desire to “significantly” cut income taxes even further—a move that would hinder reinvestment in programs and fail to generate promised economic returns.

The Senate’s low spending targets make plain the shortsightedness of such an approach. For example, investments in public schools would only increase by .013 percent after accounting for enrollment growth. School systems and students would have to go without essentials that support academic achievement and completion, hindering the long-term growth potential of the state.

As the Senate moves forward in the budget process, budget writers should keep and build upon the House’s planned investments in the things that build a more inclusive economy so the state can better position itself to be competitive. Further deep tax cuts hinder lawmakers’ ability to achieve this goal. Below is a list of ten examples of economy-boosting investments and policy changes that the House included in its budget plan. Read More

NC Budget and Tax Center

This guest post was contributed by Nan Madden, director of the Minnesota Budget Project in St. Paul, Minnesota.

Minnesota is basking in some attention in news outlets across the nation highlighting its strong economy, low unemployment numbers and a median wage sitting above the national average.

That’s not the scenario painted two years ago by opponents of Minnesota’s tax reform bill. At the time, opponents predicted economic catastrophe. Instead, Minnesota is thriving.

In the last two years, Minnesota has made smart changes to its tax system that positions the state well for long-term economic growth. The 2013 tax reform plan came after years of budget deficits and deep cuts to public services, and it allowed the state to make investments that lay a strong foundation for prosperity, including increased funding for early childhood education, schools and more affordable higher education. These investments will pay off in the long run by producing the highly-educated workforce that has been one of the keystones to Minnesota’s economic success.

These changes also modernized the state’s tax system so that it generates adequate revenue for a thriving state in a 21st century economy, and made the distribution of taxes across income groups more even.

A vital component of the 2013 tax reform was the creation of a new income tax rate on the 2 percent of Minnesotans with the highest incomes. The package also raised revenues by ending several corporate tax preferences and increasing tobacco taxes. The 2013 tax reforms – as well as actions in 2014 – took additional steps to make Minnesota’s tax system less regressive. Lawmakers expanded Minnesota’s state Earned Income Tax Credit and increased property tax refunds for renters and homeowners.

And a study released earlier this year from the Minnesota Department of Revenue shows those efforts have moved us in the right direction. Overall, the tax changes made the past two years raised taxes on the highest-income Minnesotans closer to the state average, and lowered taxes for all other income groups. While our tax system is still regressive, meaning the percentage of income paid in taxes goes down as incomes rise, it will be significantly less so in 2017 than 2012. The highest-income Minnesotans still pay the smallest share of their incomes in total state and local taxes, but the gap between them and other Minnesotans has closed considerably.

After more than a decade of frequent budget deficits, Minnesota now is fortunate to have a $1.9 billion surplus for the upcoming two-year budget cycle. The surplus doesn’t mean the state should reverse course. As Minnesota’s legislative session enters its final weeks, we’re urging policymakers to continue on the path of making our tax system more fair and not offer large, unsustainable tax cuts to a privileged few.

While Minnesota’s economic success is making headlines today, the tax reforms taken over the last two years have set the stage for economic progress for years to come.

NC Budget and Tax Center

The budget passed by House members last week makes clear that North Carolina remains hampered by costly decisions made in recent years. Despite modest improvements in some areas of the budget, important public investments that drive the state forward remain well below pre-recession spending levels. The House budget is a reflection of choices and an example of missed opportunities.

Modest funding increases in the House budget are primarily the result of moving the goal post. For example, fully funding enrollment growth for our public schools and providing teachers and state employees a two-percent pay increase are typical budget practices, particularly in budgets crafted during a recovery.

The budget hikes various fees, increases tuition at community colleges, fails to reinstate the state Earned Income Tax Credit, and resorts to cutting funding from certain programs to fund others (e.g., the House reduced funding for textbooks in order to fund other areas of the public education budget).

Rather than address persistent underinvestment and seize opportunities to support a stronger economy, state lawmakers will allow another round of corporate tax cuts to go into effect – reducing annual revenue by $100 million in the first year, $350 million the second year, and more than $500 million in subsequent years.

Revenue lost just from these additional corporate tax cuts, which state leaders seem unwilling to debate, could provide funding for much-needed public services that strengthen our communities and the state’s economy. Read More