NC Budget and Tax Center

NC Budget and Tax Center

State revenue collections are coming in $199.2 million below projections half way through the fiscal year, according to the legislature’s non-partisan Fiscal Research Division’s new revenue outlook report. This report provides an assessment of revenue collection performance for the state on a quarterly basis. The main culprit behind the mid-year shortfall is the 2013 tax plan that reduces revenue availability while primarily benefitting wealthy taxpayers and profitable corporations. The plan’s personal income tax cuts are costing more than previously expected.

The growing cost of the 2013 tax plan further challenges state lawmakers’ ability to rebuild what was lost in the aftermath of the Great Recession and reposition itself to compete nationally and globally. North Carolinians are already dealing with the fallout of the current state budget that falls short of what’s needed for children, families, and communities to thrive. The inadequacy of the budget has been chronicled in the news, with many stories focusing on how there are too few textbooks (even toilet paper) as well as the local challenges that state budget and tax decisions are creating.

It is important to view this mid-year revenue shortfall in the context of the dollars that lawmakers already lost due to the tax plan. For the 2015 fiscal year, Fiscal Research Division originally estimated that the plan would cost $512.8 million but soon revised its revenue outlook to account for an additional loss of $191 million. This latest report of $199.2 million in under-collections comes on top of these already-accounted-for losses.  By the end of the fiscal year, the total cost of the tax plan could reach as high as $1.1 billion, according to the Institute on Taxation and Economic Policy’s estimates. That’s roughly equivalent to the state dollars that support the entire Community College System.

Highlights of the Revenue Outlook Report Read More

NC Budget and Tax Center

A new report released today by the Budget & Tax Center highlights how eliminating North Carolina’s taxes on capital gains would largely benefit those who need it least while making things worse for families struggling to make ends meet.

Some lawmakers and outside groups in North Carolina are pushing a plan that would benefit the wealthy at the expense of everyone else by ending state taxation of profits from selling artwork, vacation homes and other high-end items owned by relatively few North Carolinians. The proposal is part of a larger push to radically alter North Carolina’s tax structure to the detriment of the long-term well-being of the state and its residents.

Cap gains allocation

Key findings from the report include:

  • Eliminating capital gains from state income tax would reduce annual state revenue by $520 million, meaning even less revenue for public investments that help drive the state’s economy forward. This revenue loss would be in addition to the costly 2013 tax plan, which is projected to reduce state revenue by as much as $1.1 billion for the fiscal year that ends June 30.

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NC Budget and Tax Center

North Carolina’s recovery from the Great Recession has been slow and uneven across the state. While some cities have rebounded and are thriving, many communities—particularly communities of color— continue to struggle due to a shortage of good-paying jobs.

It is in this context of uneven opportunity and access that our state and nation should not just reflect on the legacy of Dr. Martin Luther King Jr. but also act to build a more equitable economy.

Ensuring that all people—regardless of where they live, their skin color or their background—can get an education find work that enables them to support their families and get ahead is increasingly the only way to create sustained economic growth. The academic literature and the experience of various small-scale policy efforts have increasingly shown that the pursuit of more equitable economic outcomes yields stronger and more sustained growth that benefits everyone. In North Carolina alone, closing the difference just in wages across racial groups would grow the economy by $63.5 billion.

North Carolina will be increasingly diverse in the years ahead. By 2040, 48.2 percent of the population will be from communities of color. Yet differences in access to and success in school, the labor market, and asset building, for example, have meant that the future strength of the economy is eroding as we underinvest today in opportunities for communities of color. Read More

NC Budget and Tax Center

We are largely a nation of immigrants, and relatively recent ones at that. Waves of immigrants have come to the United States over the past several centuries, transforming the county from a colonial backwater to the wealthiest nation on the planet.  A report just out shows how important immigrant business owners are to communities across the country. As can be seen below, immigrants are over-represented as business owners, and it turns out they make up a particularly large share of main street proprietors.

Immigrant Percentage of Workforce and Business Ownership

The role that immigrants play as local business owners tends to be overshadowed in the policy debate surrounding immigration policy in the U.S.  Amidst the talk about border security, paths to citizenship, and human rights, we tend to overlook the fact that immigrants are vital to the economic backbone of the United States, small businesses. The Fiscal Policy Institute report shows that while immigrants make up 16% of the labor force, they own 28% of the main street businesses in the U.S. In many communities, immigrants make up a larger share of small businesses owners today than they did a decade ago, which is clearly shown in the graph below. Moreover, the report underscores how important immigrant businesses can be as early instruments of community revitalization, going into neighborhoods and communities when larger firms are still hesitant to invest.

Immigrant Business Ownership in Major Cities 2000 to 2013

Here are some of the other highlights from the report:

  • Immigrants are more important to metro small business communities than ten years ago. The report shows that the share of businesses owned by people born outside the United States has gone up in virtually every major metropolitan area in the country in the last 10-15 years. This includes both Charlotte and Raleigh, which saw marked jumps in immigrant small business ownership from 2000 to 2013.
  • Immigrants are particularly likely to own very small businesses. More than 80% of businesses owned by immigrants had ten or fewer employees, compared to just over 70% for native-born business owners. Many of these immigrant businesses are in main street service sectors, like laundries, barber shops, restaurants, groceries, and travel accommodation.
  • Immigrants are less likely to use a bank loan to start their businesses. Particularly on main street, native born business owners are more likely to get bank loans while immigrants are more likely to rely on personal savings. There are a host of reasons for this, but it is a point of concern. Access to capital is the lifeblood of small business, so if immigrants find it difficult to secure startup and operating capital, communities may lose businesses that are otherwise solid, or miss out of new businesses that never got off the ground.
  • Case studies in engaging immigrant business owners show the importance of public policies in supporting the success of these entrepreneurs. The report highlights economic revitalization efforts in Philadelphia, Minneapolis/St. Paul, and Nashville that focus on the needs of immigrant business owners.

When you take a sober look at the economic data, its clear that immigrants are essential to the economic well-being of the United States. Whatever you think about recent Executive actions, or what needs to be done about immigration policy generally, this is not an issue that we can afford to ignore. Immigrants have always been part of the U.S. economic history and, if we want to remain one of the most dynamic economic markets in the world, immigrants will be at the heart of those future stories as well.

NC Budget and Tax Center

The latest Who Pays? report released today by the Institute on Taxation and Economic Policy (ITEP) takes a look at the fairness of state tax systems. For North Carolina, the lowest income North Carolinians pay over 70 percent more in state and local taxes as a share of their income compared to the state’s wealthiest residents, the ITEP report highlights.

The lowest 20 percent of North Carolinians – with an average income of $10,700 – pay 9.2 percent of their income in state and local taxes, the study finds, compared to 5.3 percent for the top 1 percent, the average income for this group is $969,100.

North Carolina’s unfair tax system presents both short- and long-term challenges and concerns. The state’s unfair tax system not only contributes to widening income inequality in the short term, but also leaves the state struggling to raise adequate revenue for public investments in the long term, ITEP notes. These realities are already playing out in the North Carolina. As state lawmakers return to Raleigh this week for the 2015 legislative session they face an ongoing revenue shortfall as a result of tax cuts passed in 2013.

North Carolina has moved away from many features that create a fairer tax system. State lawmakers replaced a graduated personal income tax rate structure (meaning the higher one’s income, the higher one’s effective personal income tax rate) with a flat rate that doesn’t take into account a taxpayer’s ability to pay, allowed the state’s Earned Income Tax Credit to expire, expanded the sales tax base, and allowed the corporate income tax rate to be cut from 6.9 to 5 percent and potentially as low as 3 percent.

These changes have resulted in a sizable reduction in revenue, with the state now challenged with funding basic public obligations such as education and healthcare services for the elderly and poor. Returning to a graduated income tax rate structure, reestablishing a state Earned Income Tax Credit, creating a renter’s credit or an enhanced and refundable Child Tax Credit, and stopping further tax cuts that largely benefit the wealthy and profitable corporations are important opportunities to create a fairer state tax code.

A state tax code that works for all North Carolina taxpayers is important for ensuring that economic opportunity and prosperity is broadly shared. The Who Pays? report highlights that there is work to be done to make this a reality.