NC Budget and Tax Center

NC Budget and Tax Center

Last week as the Budget & Tax Center released its analysis of the impact of unemployment insurance changes on jobless workers one year later, the Department of Commerce Employment Security Division announced that the unemployment insurance debt will be paid down early.

The resolution of the debt in August 2015 rather than November 2015 will mean that employers will no longer have to pay an additional federal tax that resulted when the Trust Fund came due for the following year. That federal tax represented the primary contribution employers were making to address the debt that was created as a result of tax cuts that they received in the 1990s and the historic job loss of the Great Recession.

As we wrote about in our report released last week, the vast majority of the savings that allowed for this accelerated repayment came from benefits cuts that primarily have reduced the maximum available weeks and the average weekly benefit amount. Both of these changes have hurt jobless workers as they have fewer dollars to make ends meet and continue their job search.

BTC - Changes to UI Benefits

Moreover, because jobless workers have fewer dollars to spend in local communities, these cuts have a ripple effect in local economies. Estimates suggest in this recession and recovery that for every $1 of unemployment insurance payments, $2 in economic activity is either sustained or generated. Each month the fewer dollars for jobless workers is impacting their spending and ability to participate in local economies twofold.

This economic impact and the harm to jobless workers and costs to the state to help these families in other ways are reason enough for policymakers to change the most harmful aspects of current law. By delinking the number of weeks from the unemployment rate to 26 weeks like the majority of states offer and by changing the benefit calculation formula to the two highest quarters of previous earnings while also seriously reforming the state financing of unemployment insurance through a forward financing model, the system can be put back into balance and the debt can still be repaid.

NC Budget and Tax Center

Income tax cut costs will rise to more than $1 billion by 2016, raising serious concerns about whether the current budget negotiations are putting forward a fiscally responsible path to meet the priorities of our state. Before the budget is finalized, legislative leadership must consider this newly available information that the tax cuts will cost more than originally estimated and move immediately to stop further revenue losses in 2015.

Fiscal Research Division revised estimates this week based on new data just released from the Internal Revenue Service on the incomes and taxes paid by North Carolinians through the personal income tax in 2012.

The higher cost of the tax plan is likely the result of the greater benefit that the tax plan has for high wealth taxpayers who have seen their incomes recover more quickly out of the Great Recession. Prior estimates by Fiscal Research Division were based on IRS data from earlier years thus not accounting for this income growth and the latest available information on the costs of deductions and credits.  It is clear not only that the rate reductions are having a larger than anticipated effect but also that we should not expect that base-broadening impacts will be sufficient to hold those revenue losses in check.

The fundamental issue is that the income tax cuts cost more than originally projected and require policymakers to take immediate steps towards stopping further revenue losses with rate reductions automatically scheduled to go into effect in 2015.

NC Budget and Tax Center

Plans to finance both public education and transit at the local level would be stopped in their tracks under HB 1224 that passed the state Senate Finance Committee yesterday. The bill not only places a hard cap on the local sales tax rate at 2.5 percent but also only allows counties to levy a sales tax increase for either education or transit—not both.  This bill joins a slate of other bills that would restrict local control. The full Senate is scheduled to vote on the bill Monday night.

In effect, the bill restricts local governments’ authority to meet local needs and balance their budgets. Importantly, the bill is aimed at shifting the responsibility of funding public education away from the state and towards local governments. The state clearly cannot afford last year’s tax plan and now legislators are proposing budgets that would make serious cuts to public education as a result. Those cuts would have to be absorbed by children in the classroom or addressed at the local level, putting local governments in a tough spot having to choose whether or not to make up the difference via a local tax.

Local governments are dealing with the fallout from last year’s tax plan in other ways too. They no longer have access to the school Capital Building Fund, which received a portion of revenue generated from the state corporate income tax. Schools used this fund to help them meet their education obligations, as my colleague explained last month. The result is a $382 million dent over the next five years. This loss is on top of the looming $63 million-annual dent resulting from elimination of the local privilege tax in 2015. Read More

NC Budget and Tax Center

North Carolinians are being dealt a bad hand. The deep revenue losses resulting from the 2013 tax plan is creating a reality in which there are too few dollars available to meet the needs of children, families, and communities. Budget writers are facing a self-imposed budget crisis and finding it difficult to agree on just how large the cut to public schools and public health should be to meet its priorities and balance the budget. To be clear, budget writers agree that those core budget areas should be cut compared to the enacted 2015 fiscal year budget but have yet to agree on the size of the cut.

That’s the main reason why North Carolina is more than two weeks into the new fiscal year without a revised state budget.

For weeks budget negotiators in the House and Senate have been shuffling the deck, making proposed cuts in core areas of the budget and moving that money around in order to finance much-needed pay raises. This budget shuffle is further proof the state is facing a revenue problem. Read More

NC Budget and Tax Center

In case you’ve missed it, there has been a phenomenal film series going on this summer throughout North Carolina, which concludes this month with screenings of “Inequality for All” in nine cities from July 22nd – July 31st. The Moral Movies film series, which also included showings of American Teacher, American Winter and Freedom Summer, is sponsored by Working Films, NC NAACP, NCAE, Tar Heel Alliance of Classroom Teachers, Democracy NC, NC State AFL-CIO, NC Justice Center and a number of local partners.

The films offer a way for North Carolinians to see informative documentaries on multiple issues such as education, poverty, workers’ rights, voting rights, civil rights and inequality, and discuss their implications in the context of our state’s current policy environment and the continuing march towards social and economic justice. Following each film, attendees are provided opportunities to take action to improve the lives of all North Carolinians through improving investments in education, raising wages for workers, ensuring broader access to voting rights, or decreasing a widening income and wealth gap. Hundreds have attended one or more of the films in the series around the state, which kicked off in April with American Teacher.

The last film in the series, Inequality for All, features Robert Reich – professor, best-selling author, and Clinton cabinet member – as he demonstrates how the widening income gap is having a devastating impact on the American economy. Reich suggests that the massive consolidation of wealth by a precious few threatens the viability of the American workforce and the foundation of democracy itself. The film unfortunately resonates clearly with North Carolina’s experience given that recent legislative developments such as continued underinvestment in education and economic development, a lopsided tax plan giving big breaks to wealthy taxpayers and corporations while increasing taxes on the majority of working families, limitations to living wage policy and inaction to move towards a living wage has contributed to growing inequality.

Don’t miss your last chance to participate in Moral Movies and register to attend a screening near you this month:

Schedule of Screenings:

Winston Salem: Tuesday July 22, 6 p.m. (RSVP)

Green Street United Methodist Church, 639 S Green St, Winston-Salem, NC 27101

Fayetteville: Tuesday July 22, 6 p.m. (RSVP)

The Main Library, 300 Maiden Lane, Fayetteville, NC, 28301

Asheville: Friday July 25, 7 p.m. (RSVP)

Ferguson Auditorium at AB Tech, 340 Victoria Rd. Asheville NC 28801

Greenville: Tuesday July 29, 7 p.m. (RSVP)

Unitarian Universalist Congregation, 131 Oakmont Dr. Greenville, NC 27858

Raleigh: Tuesday, July 29, 7 p.m. (RSVP)

Community UCC, 814 Dixie Trail, Raleigh, NC 27607

Durham: Thursday July 31, 6:30 p.m. (RSVP)

Durham County Public Library Auditorium, 300 N Roxboro St. Durham, NC 27701

Greensboro: Thursday, July 31, 7 p.m. (RSVP)

Central Library Nussbaum Room, 219 N Church St. Greensboro, NC 27405

Wilmington: Thursday, July 31, 7 p.m. (RSVP)

Cameron Art Museum, 3201 S. 17th St. Wilmington, NC 28412

Charlotte: Thursday, July 31, 7 p.m. (RSVP)

Unitarian Universalist Church of Charlotte 234 N Sharon Amity Rd, Charlotte, NC, 28211