NC Budget and Tax Center

Back to School Series, NC Budget and Tax Center

This is part of a Back to School blog series that highlight various issues to be aware of as the 2014-15 school year kicks off. (See Part 1 and Part 2)

This week, more than 1.5 million North Carolina’s students headed back to school to underfunded classrooms. For yet another school year, teachers will do their best to prepare today’s students to grow into critical thinkers and succeed as workers in a demanding 21st century economy with too few resources available. Legislative leadership and the Governor approved a budget that fails to make up lost ground in public education, keeping spending below the last budget that was in place before the Great Recession.

In fact, when the pay raises for teachers are properly placed in the salaries and reserves section of the General Fund budget and not the public education section—a practice that has long been in place—public education spending in the new budget is below last year’s spending levels (see graphic below). This certainly is not progress, but rather sliding backwards with a budget trick used as cover.

Five years into the recovery from the worst economic downturn since the 1930s, catching up and keeping up with the needs of North Carolina’s students is stalled due to the fact that lawmakers chose to enact a tax plan last year that keeps the state from replacing the most damaging cuts to public investments. The 2013 tax plan is draining available resources—$5.4 billion over five years—that is needed to regain lost ground and reinvest in the building blocks of a strong economy. The tax plan’s impact is evident throughout the final budget for fiscal year 2015. Read More

Back to School Series, NC Budget and Tax Center

Cross-posted on the Prosperity Watch platform.

As North Carolina’s young people head back to school this week, it is their increased educational attainment that has the greatest potential to not only generate improved earnings and provide some protection against the worst employment outcomes their lifetime but also strengthen the state’s overall economic recovery and economy.

States with higher educational attainment not only have higher productivity but higher median wages. The increases in production of goods and services benefit the median worker in these states.

PW_Higher Educational AttainmentThat is a welcome outcome in light of national trends and what is happening in North Carolina. For the past thirty years, as the economy has become more productive, wages for the average worker have actually stagnated. In North Carolina, particularly in the most recent post-recession period, wages have actually fallen despite productivity growth.

Jobs without good wages, increased productivity without wage growth are not the markers of a successful economy. States have a unique opportunity to pursue an economic development strategy through education that is focused on increasing the wages of the median worker in the state and thus improving their well-being. Read More

NC Budget and Tax Center

It hasn’t taken long for the costly tax plan passed last year to replace grandiose promises with an unfortunate reality. State officials recently confirmed that the 2013 tax plan passed by state policymakers will cost at least $200 million more each year than initially projected, with a price tag of at least $5.3 billion over the next five years. Our own estimates point to the potential for the total revenue loss to reach $1.1 billion by 2016.

As the prolonged negotiated budget for fiscal year 2015 highlights, North Carolina’s revenue challenge hampers our ability to invest in public education, healthcare services, and other public investments that serve as the foundation of economic growth.

The General Assembly’s Fiscal Research Division (FRD) was charged with assessing the fiscal impact of the tax plan and confirms that the personal income tax rate reduction is having a greater immediate impact on revenue collections. FRD attributes the larger-than-expected eventual revenue shortfall to slower wage growth. But it’s difficult to imagine that the income tax cuts are not driving the greater revenue losses given what we know about who benefits from the tax changes and slower wage growth suggests that the tax changes should cost less, not more. Moreover, slow wage growth raises additional concerns about the reality of a Carolina Comeback. Read More

Missing Workers, NC Budget and Tax Center

Yesterday’s release of the latest labor market numbers for July 2014 continues to show a slow recovery of jobs in North Carolina. Job growth, while occurring, is insufficient to ensure that the state’s growing working age population has employment opportunities. North Carolina has still not replaced the nearly 300,000 jobs lost during the Great Recession. In fact, the state’s job creation over the year (2.1 percent) is not significantly different than that for the nation (1.9 percent) over the same period. The state’s jobs deficit also remains high at 470,000, and at the current annual rate of job creation will require five years to close.

In this context, here is the missing workers update for July 2014: there still remain more than 256,000 North Carolinians who are missing from the labor force.  These are folks who would be seeking employment if job opportunities were stronger. If these workers were counted in the unemployment rate, that rate would be 12 percent rather than the official unemployment rate for July 2014 of 6.5 percent.

BTC - Missing Workers July 2014

NC Budget and Tax Center, Uncategorized

One of the fundamental claims made about North Carolina’s cuts to unemployment insurance payments was that such a policy change would create a greater incentive for jobless workers to take available jobs and employment in the state would rise as a result.

The Economic Policy InstituEPI Cuts to Unemployment Insurance Benefitste (EPI) posted a great graphic once again demonstrating that there is no evidence to suggest such a causal effect on employment from unemployment insurance cuts.  In this case, researchers at EPI compare North Carolina’s employment levels to our neighbors who are likely to have experienced similar macro-economic conditions. Their finding:

As the graph shows, North Carolina’s prime-age EPOP (employment to population ratio) began rising rapidly in the months prior to the duration cutback, began falling steadily just two months after the duration cutback, and differed very little in behavior after the cutback from prime-age EPOPs in surrounding states.

Bottom-line: North Carolina’s labor market has not improved as a result of unemployment insurance cuts.