NC Budget and Tax Center

State lawmakers are once again considering more tax changes that won’t address what’s wrong with our current tax code or what our economy needs. During the Revenue Laws Committee meeting on yesterday, the General Assembly’s Fiscal Research Division provided committee members information regarding how raising the state standard deduction would impact taxpayers and state revenue.  This tax change would reduce the income tax owed by a taxpayer but is an expensive one that fails to efficiently target the low- and middle-income taxpayers who carry a heavier tax load than wealthy taxpayers.  A refundable state Earned Income Tax Credit is the better tool for North Carolina policymakers concerned about tax equity.

Tax changes passed since 2013 that include large income tax cuts that largely benefit the already well-off and profitable corporations have made North Carolina’s upside-down tax system worst. State lawmakers expanded the sales tax to more goods and services to partially pay for these costly tax cuts. The regressive sales tax hits low-income North Carolinians particularly hard, as they spend a larger share of their income on goods and services subject to the sales tax. This deliberate move by lawmakers to a greater reliance on the sale tax and less reliance on the income tax has shifted the tax load to low- and middle-income taxpayers and away from the well-off and profitable corporations.

In a context in which many working families earn low-wages and struggle to meet basic needs, there is increased recognition at the national level that the Earned Income Tax Credit (EITC) is the best tool to ensure workers keep more of what they earn and in so doing move families out of poverty. Here’s why a refundable EITC makes the most sense for North Carolina: many low- and moderate- income North Carolinians are not subject to a state income tax because they don’t earn enough income. However, they pay a significant share of their income in other taxes—like sales and property taxes—and the EITC helps offset the higher tax responsibility they have overall relative to wealthier taxpayers. Moreover, increasing the standard deduction would reduce the income taxes paid for all tax filers who don’t itemize, not just those with low-incomes.

Increasing the standard deduction by $2,000 not only is poorly targeted but is also costly. Fiscal Research estimates that such a proposal would reduce state revenue by as much as $205 million for tax year 2017. The actual cost may be higher considering that a higher percentage of NC taxpayers (beyond the 70 estimate by Fiscal Research) are likely to take the standard deduction as a result of tax changes since 2013. Restoring a state EITC at 5 percent of the federal amount would be half the cost of increasing the standard deduction at that level and reach nearly one million working but low-income families and their children.

If policymakers are willing to spend $200 million to address inequities in our state’s tax code then restoring a state refundable EITC and doubling its value to 10 percent of the federal amount is the better policy choice.

Commentary

This afternoon’s “must read”:

Drug testingThe results are in: North Carolina’s law to drug test Work First applicants is a costly and mean-spirited waste of time

By Mike Meno, ACLU-NC Communications Director

Early results of a new law that allows North Carolina to drug test people who apply for Work First, a program that provides temporary assistance to needy families, confirm what the ACLU-NC and others argued at the time of the bill’s passage: it is a wasteful and unnecessary government invasion of vulnerable people’s privacy.

The law was originally passed in 2013, over the veto of Gov. Pat McCrory, who called the measure “a recipe for government overreach and unnecessary government intrusion” that “is not a smart way to combat drug abuse.”

According to the Department of Health and Human Services, the state has spent about $5,500 to review 7,600 applicants between August and December. About 2 percent of the applicants were referred for a drug test, and of those, 21 people tested positive. That amounts to less than 0.3% of all applicants, according to the News & Observer. Put another way, North Carolina spent about $262 for each applicant it “caught” testing positive.

These numbers show once again that people seeking temporary assistance to support their families are no more likely to use drugs than the general public, and that laws that single out and stigmatize vulnerable people with invasive and constitutionally suspect drug tests are nothing more than a mean-spirited waste of taxpayer dollars.

The people who benefit from Work First’s temporary cash assistance, job training, and support services – and therefor most at risk under this law – are primarily families. In about 62 percent of cases, Work First benefits go to children. Of the 21 cases that tested positive for drugs, 12 involve children. Those families will now receive reduced support, and need to pay $55 for a second test if they want to reapply.

It’s important to remember in these cases that drug tests are notoriously faulty, and that if individuals are in need of drug treatment, cutting off or reducing aid to their families usually does little to get them to the help that they need. Whether it’s student loans or Social Security, many people receive some type of government benefit, yet North Carolina singles out only these vulnerable families trying to make ends meet for this unnecessary and demeaning scrutiny.

North Carolina’s lawmakers should end this misguided and baseless targeting of Work First applicants and give them the same respect and privacy they would anyone else.

NC Budget and Tax Center

The Institute for Emerging Issues wrapped up its forum on the future of work yesterday. The forum brings together leaders from across the state each year to discuss issues of importance to the well-being of the state. This year the topic was the future of work– the ways in which automation and technology are changing how we work and the relationship between workers, employers, consumers and communities.

Despite the projections and well-intentioned guesses about what the future will bring, no one knows for sure what the outcome will be.  What we do know is what we do today can support better economic outcomes for more families, businesses and communities in the state.  Research is clear that wage growth and public policy will be key to ensuring that the future of work has the number and quality of jobs that can boost the economy for everyone.

If this sounds familiar, it should. North Carolina’s wage problem is front and center in the daily lives of workers and the communities where they live today.  Without wages that ensure workers can provide for the basics and spend locally, employers struggle to see the demand for goods and services that allow them to expand and communities are challenged to support the opportunities that build the long-term potential for children’s economic success as adults.  North Carolina’s uneven recovery and elevated hardship today are indicators of what happens when policy doesn’t focus on wages or the ways in which all communities can connect to economic opportunity.

On the first day, a panel of policymakers, Senator Chad Barefoot and Speaker Tim Moore, were joined by Rick Glazier with the North Carolina Justice Center and John Hood with the John Locke Foundation to discuss just where policy can ensure that the future of work delivers greater opportunity and shared prosperity.

John Hood highlighted the critical goal of ensuring that workers have the “capital” to meet their needs and make investments that support advancement of themselves, their families and build assets in their community.  This is indeed the goal and a broadly shared one that is the concern of the vast majority of North Carolinians. A workers’ ability to make ends meet and spend is what the economy needs to function well and expand.  That is why a focus on boosting wages and what communities need to do so, not on reducing the size of government, is needed.

The solutions are readily available to North Carolina policymakers today. They are proven ones that will strengthen the economy for the future. To grow wages, North Carolina must: Read More

News

North Carolina is $181 million under budget in state spending for Medicaid for the first half of the fiscal year.

Members of  the Joint Legislative Oversight Committee on Medicaid and NC Health Choice learned Tuesday  the favorable budget outlook was driven by several factors:

• Lower service consumption by beneficiaries compared to last fiscal year
• Enrollment was flat through the first half of the year and remains below budget
• Better than expected drug rebate rates also helped

DHHS Finance director Trey Sutten told lawmakers if the numbers don’t fluctuate much over the next few months, the state could come in under budget on its Medicaid spending for a third year in a row.

Legislators are not expected to tackle Medicaid expansion in this year’s short legislative session.

Though a new report released by FamiliesUSA indicates that the eight states that did expand Medicaid last year saw a reduction in the rate of uninsured workers drop by 30 percent or more.

Another study — this one conducted in 2014 by the Cone Health Foundation and Kate B. Reynolds Charitable Trust — projected that if North Carolina extended its Medicaid coverage by the beginning of this year, 43,000 jobs would be created by 2020.

Medicaid currently serves over 1.8 million low-income North Carolinians. Here’s a look at recent enrollment growth, as presented Tuesday to the oversight committee:Medicaid enrollment

Find the full presentation here.

To learn more about closing the Medicaid coverage gap in North Carolina, click here.

News

school-busespng-91b35e2c325e0b5bWhile we’ve heard plenty of back and forth already about teacher pay in 2016, there’s been very little open discussion of teacher assistants. Given the legislature’s propensity for slashing T.A. jobs in the last few years, that silence might be a blessing, some would say.

But yesterday on EdNC, Kerry Crutchfield, longtime budget director for Winston-Salem/Forsyth County Schools, authored a fascinating piece on North Carolina’s annual debate over teacher assistants. Often viewed as a less measurable component of public education, teaching assistants have frequently found themselves on the chopping block.

But Crutchfield argues state lawmakers are making some serious errors, including relying on old data that predates 2001’s No Child Left Behind Law, which seemed to indicate no measurable improvement in student academics produced by a teacher assistant. As Crutchfield notes, that law included major qualification upgrades for classroom teaching assistants.

Crutchfield goes on to make a series of recommendations for lawmakers if teaching assistants return to the forefront this year, taking special care to argue how essential such positions are in kindergarten classrooms.

Read More