NC Budget and Tax Center

NC Budget and Tax Center

This Labor Day has renewed focus on the reality that wages for working families have been stagnating across the country and declining here in North Carolina.

This focus is a welcome change for our state where the full-throated defense of tax cuts as the solution to working families’ economic challenges has hit a hard reality. Income tax cuts have increased the tax load for many working families in North Carolina and generated untold costs for communities in the form of foregone education investments, crumbling infrastructure and more.

Still policymakers in North Carolina remain relentless in their pursuit of more income tax cuts. The final budget contemplates another $110 million in tax cuts for individuals on top of the already costly tax cuts for profitable corporations that will cost $100 million this year and $350 million next.

In our State of Working North Carolina report this week, we documented the fall in wages for the median worker since the start of the official recovery in 2009. The result is that working people don’t have the same buying power that they did before the Recession and that means businesses don’t have the same level of consumer demand for the goods and services they produce. Under such conditions, it will be hard to sustain growth in the economy and ensure that more are included in the benefits of that growth. No tax cut, especially one paid for through increased costs elsewhere, will fix that.

Policymakers have an immediate and direct mechanism in the final budget for addressing the state’s wage problem. By aligning state workers’ pay with what it takes to make ends meet, policymakers can boost the economy and strengthen the private sector. After all, state workers in North Carolina shop in privately owned grocery stories, bank at private financial institutions, purchase lawn services from private landscaping companies, and on and on.

Some would say that policymakers are trying. They have proposed an across the board $750 bonus for all state workers and bumped up the starting pay for teachers to $35,000. But by stopping their pursuit of flawed tax cuts, policymakers could actually make sure wages for public sector workers boost the economy.

Here are a few fast facts about wages and the reality for the state workers who run our courts, clean state buildings, manage permitting and support to businesses, and educate our children:

  1. Analysis by the Office of State Human Resources finds that “salary increases in state government have …cumulatively trailed CPI (aka inflation) by 4 percent over the last ten years, effectively decreasing employee “buying power.”
  2. The average weekly wage for state employees of $901 lags the national average and ranks the state 39th for its low pay.
  3. Those serving as housekeepers, health care technicians and office assistants in state government earn well below the statewide Living Income Standard for one adult, one child. In 12 out of 16 jobs that serve as benchmarks for the Office of State Human Resources, the base salary is below market rate.
  4. Base pay for a number of public-sector workers, including the teachers who educate our children, falls below what it actually takes to make ends meet today. The proposed starting pay for teachers of $35,000 is still below the statewide Living Income Standard for one adult, one child in 6 North Carolina counties.  The average pay for teachers in elementary and secondary schools has fallen by $5,000 since 2009 reducing their purchasing power even as the national economic recovery began.

The myopic interest in tax cuts on the part of policymakers has not only failed to boost the economy, it has also generated significant cost to the state. State agencies experienced a voluntary turnover rate of 7 percent in FY 2013-2014 which equates to roughly $201 million in cost to the state. Human capital is hard to replace and that is why competitive compensation and a positive work environment is critical. In the public university system, the state has lost a reported 3 out of 4 retention battles. Researchers who have left state universities took grants totaling $91 million and likely significant intellectual property of far greater value to the state.

It is time for policymakers to take seriously the wage challenges facing workers in North Carolina. Starting now with the budget to increase the buying power of state workers is the first step, the next one is to follow 29 other states and raise the minimum wage for all workers.

NC Budget and Tax Center

As part of ongoing negotiations to produce a state budget, state lawmakers would like to provide more tax cuts to North Carolina taxpayers. This tax proposal, while unclear in the details (is it another reduction to the already low 5.75 percent personal income tax rate?), would offset the increase in various DMV fees included in the budget passed by House members.

A refundable state Earned Income Tax Credit (EITC) is a great way for state lawmakers to fulfill their desired goal of ensuring working families aren’t paying more as a result of their budget choices. The EITC provides a modest boost to the wages of low- and moderate-income workers, which will help offset additional costs resulting from an increase in DMV fees. Prior to its elimination in 2014, more than 927,000 North Carolinians claimed the state EITC, with working families in each of the state’s 100 counties benefiting from the tax credit.

State lawmakers’ reported agreement to provide $110 million in tax cuts to offset the DMV fee hikes is close to the value of the state EITC. For FY 2013, prior to its elimination, the state EITC cost around $101 million, which is less than the tax cut target agreed to by state lawmakers. The EITC is the best targeted tool to address the upside-down nature of the state’s tax code. Better than an increased standard deduction, the tax credit is proven by years of experience and research to effectively target working families who earn low wages so that they can make ends meet, support their children’s healthy development and boost the economy.

If state lawmakers are serious about correcting the imbalance in the state’s tax code, a refundable state EITC is the most effective way to support children and working families and help spur economic activity in local communities across the state.

NC Budget and Tax Center

As we edge closer to the 16th anniversary of Hurricane Floyd, it is important to review the vital role that state emergency funds play when disaster strikes. Lawmakers in North Carolina tapped into state “rainy day funds” to help cope with the storm’s aftermath: the cost of providing assistance to families in need and rebuilding destroyed communities. Unfortunately, the North Carolina Senate is seeking to weaken access to our rainy day fund, even in times of true emergency.

Floyd, which hit about a week and a half after Tropical Storm Dennis, caused some Tar Heel families to lose loved ones, jobs, and all of their possessions in drowned cities. The storm caused $6 billion in damage and destroyed entire communities, including homes, farms, and businesses. Response efforts also put stress on the state budget, causing mid-year budget freezes and cuts totaling $504 million.

There is no doubt that the state’s response would have been far weaker in the absence of state and federal emergency funds. Then-Governor Hunt called a special session and North Carolina lawmakers approved nearly $286 million to be pulled out of the rainy day fund, which supplemented $838 million in federal emergency funds to support the response efforts. Read More

NC Budget and Tax Center

We still don’t know exactly what kind of tax and budget deal will emerge from the legislature when it wraps up business in the coming weeks, but it will likely include another round of tax cuts for large multi-state corporations. We’ve also seen an alarming push to bake further tax reductions and spending limits into the state constitution, called TABOR, which would constitutionally mandate policy that we’ve never even tested through regular legislation, and which has been a proven failure in Colorado. Against this backdrop, remember that there is no evidence that tax cuts can solve the economic challenges that we face.

Tax cuts have not improved North Carolina wages. Now that we have recovered from the worst of the Great Recession, many economists see a lack of wage growth our most pressing economic challenge. Wages in North Carolina are even more stagnate than for the US as a whole, a problem that has not been solved by tax cuts over the last few years. The average hourly wage in North Carolina is now roughly $3 less than the national average, a gap that has actually widened since the first major round of recent tax cuts passed in 2013. Tax cuts have not solved our wage problem, and there’s no reason to expect that change.

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NC Budget and Tax Center

Legislators approved a third budget extension today as the House and Senate leadership continue efforts to iron out a final budget deal. The existing temporary budget, known officially as a Continuing Resolution, is set to expire on Monday. If signed by the Governor, the newest extension will keep public programs and services operating through September 18th, which is 79 days after the original budget deadline of July 1st.

The third budget extension will keep state government operating exactly as the second stop-gap measure approved earlier this month. I outlined those details in a previous blog post.

Leadership in the House and Senate chambers already agreed to a topline spending target of $21.735 billion for the 2016 fiscal year that runs through June 30, 2016. That means state investments as a part of the economy would remain below the 45—year average, impeding the ability to restore previous cuts and make progress in a significant way. Read More