NC Budget and Tax Center

NC Budget and Tax Center

I recently noted the differing approaches of President Obama and Congress regarding tax changes, developing a budget and supporting the economy. In particular, I noted Congress’ push to eliminate the federal estate tax – which applies to very large inheritances by a small group of wealthy heirs.

Over the years, the amount of inheritance that is exempt from the federal estate tax has increased exponentially while efforts to raise the minimum wage in line with the growing costs of meeting basic needs have stalled.

In 2001, the federal minimum wage was $5.15 an hour and remained at that level until 2008 when it was increased to $5.85 an hour and then to $7.25 in 2010, where it remains today. On this issue, North Carolina has not differed from federal law, with a state minimum wage of $7.25 as well.

By contrast, in 2001, the amount of estate inheritance that could be exempt from the federal estate tax was $625,000. By 2008, this exemption amount increased to $2 million and for 2015 the exemption amount is $5.43 million. In 2013, North Carolina state lawmakers completely eliminated the state’s estate tax (only 23 North Carolina taxpayers paid an estate tax for the 2012 tax year). In the same year state lawmakers eliminated the state Earned Income Tax Credit, which helped more than 900,000 low- and moderate-income taxpayers who earn low wages keep more of what they earn to offset an already regressive state tax system. Read More

NC Budget and Tax Center

A new report commissioned by Think NC First and written by John Quinterno gives a new moniker to the official recovery that began in 2009: incomeless.  Add that to the “jobless” and “uneven” labels that the recovery has earned to date and the reality for us all begins to look not at all like recovery.  The report takes a thorough look at income in North Carolina and finds that the trends are “running in reverse.”  Among the findings:

  • From 2007 to 2013, the inflation-adjusted income of the median North Carolina household dropped by more than 8%. Median income fell by 5.5% from 2007 to 2009 and by another 3.2% during the recovery that started in 2009 through 2013.
  • From 2009 to 2013, real average household income fell or remained unchanged for every household income group in North Carolina except for the top 5%.
  • The distribution of household income in North Carolina has grown more unequal since 2007, and the distribution of income in North Carolina in 2013 was more unequal than in the nation as a whole.
  • The annual earnings of the median worker (ages 16+) fell by 7.4% between 2007 and 2013.
  • Real median household income in North Carolina was effectively no different in 2013 than in 1984.

As Quinterno points out, the lack of jobs and other labor market conditions have put downward pressure on wages but policy choices have made worse these wage outcomes.

Allowing inflation to erode the value of the minimum wage, refusing to enforce and to modernize labor laws, undercutting the effectiveness of the unemployment insurance system, making work more costly by repealing the state earned income tax credit, and enacting tax policies that fail to boost growth yet drain needed public revenues—these choices have tamped down wages and incomes.
Be sure to check out the full report here.
NC Budget and Tax Center

The March employment numbers out today show another month of positive, but relatively lackluster economic performance in North Carolina. The unemployment rate in North Carolina has now been essentially flat for the last five months and the number of unemployed North Carolinians has actually increased in the first three months of 2015.

According to analysis of the latest labor market data by the Budget & Tax Center, employment levels have edged up in the last year, but are still well below the pre-recession norm. In fact, a smaller share of North Carolinians have a job today than during the worst of the recession that followed the 9/11 attacks.

“The North Carolina economy has been idling along for several months and continues to be weaker than it was in 2007,” said Patrick McHugh of the North Carolina Budget and Tax Center. “The worry now is that we’ll see a new normal, with lower levels of employment and paychecks that don’t go as far.”

Other highlights of the March data include:

  • Unemployment rate not making gains: After falling dramatically from 2009 through the third quarter of 2014, the state and national unemployment rates have flattened out in recent months. Even while the state continues to add jobs, growth is not enough to push unemployment below the 5% threshold that most economists see as the top-end of a healthy labor market. Part of the flattening out may be attributable to people coming back into the labor force, which would be good news. However, it is still troubling to see the labor market falling well short of full employment.
  • Still more North Carolinians out of work than before the Great Recession: Even though the ranks of the unemployed have declined over the past year, there are still more than a quarter-million North Carolinians looking for work, approximately 10% more than at the end of 2007.
  • Percent of North Carolinians employed still near historic lows: March numbers showed 57.5% of North Carolinians were employed, which is up 1 percentage point from March 2014. However, this still leaves North Carolina well below the level of employment that was commonplace before the Great Recession. In the mid-2000’s, employment levels were generally between 62% and 63%. Moreover, the level of employment in North Carolina has fallen behind the national average, when the state was generally at or above the nation in the pre-recession period.

For more context on the current state of the North Carolina economy, check out a recent report that reviews the last seven years of economic data and the Budget & Tax Center’s weekly Prosperity Watch platform.

 

NC Budget and Tax Center

Members of the Kansas Center for Economic Growth are visiting North Carolina this week to share what has happened in Kansas following massive tax cuts signed into law by Governor Brownback back in 2012. Kansas has become a case study of the grave consequences resulting from a dogged pursuit of tax cuts as an economic growth strategy. The results are not that good.

In 2012, Kansas enacted tax cuts that were considered among the largest ever enacted by any state. Tax cut proponents in other states – including North Carolina state lawmakers – held Kansas up as a model to be replicated. Accordingly, North Carolina state lawmakers followed Kansas’ path and passed huge income tax cuts in 2013 that largely benefited the wealthy and profitable corporations and significantly reduced available revenue for public investments.

For Kansas, the reality in the wake of the costly tax cuts has been nothing to write home about. Here are some low-lights of Kansas’ experience, accordingly to the Center on Budget and Policy Priorities.

  • Deep income tax cuts caused large revenue losses. Kansas’ tax cuts last year cost the state more than 10 percent of the revenue it uses to fund schools, health care, and other public services, a hit comparable to a mid-sized recession. The revenue loss is expected to rise to 16 percent in five years if the tax cuts are not reversed.
  • The tax cuts delivered lopsided benefits to the wealthy. Kansas’ tax cuts didn’t benefit everyone. Most of the benefits went to high-income households and taxes were even raised for low-income families to offset a portion of the revenue loss.
  • Kansas’ tax cuts haven’t boosted its economy. Since the tax cuts took effect at the beginning of 2013, Kansas has added jobs at a pace modestly slower than the country as a whole. Furthermore, the earnings and incomes of Kansans have performed slightly worse than the U.S. as a whole as well while the number of registered business grew more slowly in 2013 than in 2012.

Read More

NC Budget and Tax Center

The ongoing, raging debate at the federal level regarding tax changes highlights the contrast between the proposals being put forward by President Obama and Congress for developing a budget and supporting the economy. The President would like to provide tax cuts to middle-income taxpayers – by enhancing the Child Care Tax Credit and the Earned Income Tax Credit, for example. Congress, by contrast, would like to repeal the federal estate tax, for example, which would benefit the wealthy.

The estate tax is essentially a tax on very large inheritances by a small group of wealthy heirs. An estate must have a value of $5.4 million (after related debt is accounted for) before the estate tax applies. Only the estates of the wealthiest 0.2 percent of Americans – roughly 2 out of every 1,000 people who die – owe any estate tax.

A repeal of the estate tax amounts to a massive windfall for those heirs. Proponents often claim that the estate tax hurts small farmers and businesses by forcing people to sell their family farm or business. In North Carolina we have heard this claim despite no evidence presented to support the claim. Still, proponents have continued to make the claim over the years, as Dean Baker at the Center for Economic and Policy Research notes. In the early 2000s, the American Farm Bureau Federation, a leading advocate for repealing the estate tax, could not cite a single example of a farm lost because of estate taxes.

North Carolina state lawmakers latched onto this false claim back in 2013 to repeal the state’s estate tax. Read More