NC Budget and Tax Center

Policymakers have chosen to reduce state spending in recent budgets and appear poised to continue that approach even despite a recovering economy.   Such small thinking ignores the fundamental role of state budgets in supporting the broader economy and delivering opportunities to communities and families.

The state’s most recent budgets (and current budget proposal from the Governor) break dramatically with our state’s past and put at risk the foundations of a strong economy by spending at historically low levels as a share of the economy. An analysis of data back to 1970 on state spending shows that North Carolina today is dedicating a lower level of our total resources to public services than we did in 1973 (see graph). That year was the start to the 1973-1975 recession characterized by the oil crisis and stagflation, and largely recognized as the end of the post-World War II economic boom. It’s also when computers conducting sophisticated analysis took up entire rooms or buildings, office work had not yet been impacted by the use of personal computers and those that did exist could store just 16 lines of text.BTC - Collective Commitment 1973

Today, North Carolina has passed the fifth year of the official recovery from the Great Recession that started in 2007. For six years in a row state spending has continued to erode and the Governor’s budget would continue that trend.

Looking at state spending as a share of the economy, or total state personal income, is akin to the way in which federal budgets are assessed relative to GDP. Importantly it represents a reflection of our collective commitment to build an economy that works for everyone. Such a measure also provides a way to assess whether we are spending more or less over time while also considering that with economic growth there are more resources available and needed to support the economy.

The evidence is clear on this point: smart state spending is necessary to support positive economic outcomes. Read More

News

The N.C. House of Representatives had its election Thursday for eight members serving four-year terms on the University of North Carolina’s Board of Governors.

House members voted to keep three current members in place for another four years, while bringing on five new members.

Several of the 30 candidates vying for this year’s 16 open slots on the UNC Board of Governors have also been significant contributors to political campaigns, with more than $1 million in contributions coming from the nominees and their immediate family members.

The House appeared to turn away from some of the more significant donors in their election. Raiford Trask III, J. Edgar Broyhill and Hari Nath were all rejected by House members, and had been significant contributors over the last eight years to political campaigns. Trask, Nath and Dick Taylor are all current board members who weren’t reelected.

Those chosen were:

  • Jim Holmes Jr., a Raleigh accountant (currently on board)
  • David Powers, a Winston-Salem government relations executive with Reynolds American (Currently on board)
  • Mary Ann Maxwell, a Goldsboro businesswoman (currently on board)
  • Pearl Burris-Floyd, a former state representative from Gaston County
  • Alex Mitchell, a Durham developer
  • Philip Byers, of Rutherford County, on staff with the charter school group Challenge Foundation
  • Joe Thomas Knott II, a Raleigh attorney
  • Walter Davenport, a Raleigh accountant who previously served on the Board of Governors

 

Davenport is a Democrat, while the other seven appointed by the House are Republicans. Both Davenport and Burris-Floyd are black, while the other six are white.

The Senate made its selections yesterday, and the new members will join the board at the start of the new fiscal year in July.

Commentary

Following sharp questioning of Commerce Secretary Skvarla in a Senate Finance Committee hearing Tuesday, it was readily apparent that the Senate would take a different tack on economic development than the House, which passed its own much-criticized package last month. In a surprise press conference yesterday afternoon announcing their own “jobs package” , however, Senate leaders made it abundantly clear that “different” didn’t mean “better” when it comes to growing an economy that benefits everyone in the state. While the bill does take a few positive steps forward on improving our state’s incentive programs, on balance, the bad outweighs the good and does not represent the most effective approach to economic development.

Most importantly, the proposal doubles down on tax cuts and company-specific tax incentives, instead of policies that benefit companies by adding economic value to communities. We’ve known for decades that North Carolina’s competitive edge in the global economy rests on providing companies with the skilled workforce and infrastructure they need boost to their productivity and ensure long-term profitability.

Unfortunately, the proposed changes to the Job Development Investment Grant (JDIG) program ignore these time-tested strategies for robust economic development in favor of budget-busting tax cuts and corporate incentives that have proved more expensive and less effective than advertised. In fact, 60 percent of JDIG projects have failed to live up to their promises of job creation or investment since the program began in 2002, and JDIG is out of money because the state spent more than half the available funds on a single project in Charlotte.

At a time when North Carolina needs to create at least 400,000 new jobs just to meet the needs of growing population, now is not the time to double down on ineffective economic development.

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Uncategorized

State lawmakers constantly claim that they are looking out for average North Carolinians. However, actions speak louder than words and proposed tax changes that the state Senate aims to enact is a good example. The tax changes would further shift the tax responsibility to low- and middle-income taxpayers and away from the wealthy and profitable corporations.

As part of the proposed tax changes, the Senate would target cash-strapped homeowners by requiring them to pay state income tax on mortgage debt forgiven by lenders, even though no actual cash is provided to the homeowners. Another proposed tax provision would no longer allow students and families to deduct expenses for tuition and related expenses such as course textbooks, supplies, and equipment.

These two proposed tax changes were excluded from the House version of the bill; however, the Senate has not budged and has kept these tax changes in its package of proposed tax law changes. Consequently, while many North Carolinians continue to await their Carolina Comeback amid an uneven recovery and a steady increase in the cost of a college education, state policymakers are essentially saying “tough luck”.

In contrast, the same Senate bill includes a tax break for businesses that fall on bad luck. The proposed tax change would allow businesses that experience economic losses (e.g. they don’t make a profit), potentially as far back as 30 years, to carry forward those losses to reduce profits generated in the years ahead. Rather than ensuring that profitable corporations pay their fair share, this tax change does the opposite.

The disturbing reality is that North Carolina’s tax system favors the wealthy and profitable corporations at the expense of average North Carolinians. Whereas distressed North Carolina homeowners who were preyed upon by unethical lenders are punished as a result of receiving much-needed consumer relief, profitable corporations are provided tax breaks in the event they fall on hard times.

Such tax changes contribute to the making of North Carolina’s upside-down tax system, which work to shift the tax responsibility to low- and middle-income taxpayers and away from the wealthy and profitable corporations.

Commentary

The warped ideological prism through which the leaders of the North Carolina Senate view reality continues to give rise to new and maddeningly counterproductive policy proposals. The latest came yesterday afternoon when, fresh off of wrecking the state revenue picture for years and handicapping core services like education, the courts and environmental protection with the regressive 2013 tax package, senators proposed another round of corporate tax cuts.

As Alexandra Sirota of the Budget and Tax Center explained it rather politely last night, this is the absolute last thing North Carolina needs right now:

“The corporate tax cuts in the Senate’s proposal would further reduce revenue for investments in our public schools and universities and other building blocks that help drive the success of businesses. Businesses need an educated workforce and modern infrastructure to be successful. Cuts to the tax rates for profitable corporations or changes to the way corporate income is considered for purposes of taxation also won’t address falling wages for the average North Carolinian. Furthermore, the Senate proposal changes to taxes paid by profitable multi-state corporations would not guarantee reinvest in our state and be at the expense of small, home-grown North Carolina businesses.”

In other (and less gracious words), the Senate’s unrequited love affair with trickledown economics continues and will, if unchecked, continue to spur North Carolina’s ongoing and destructive spiral back down into the realm of its backward neighbors like Tennessee, South Carolina, Alabama and Mississippi.