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McCrory_budget305-aIt has been a rough couple of weeks for Governor Pat McCrory. First, the House and Senate overrode his vetoes of the so-called ag-gag bill and the legislation that allows magistrates to refuse to marry gay couples if they have a religious objection to marriage equality.

Then Monday Senate leaders rolled out a budget that refuses to restore the state historic tax credit program that McCrory has spent months promoting across the state. The budget also includes a plan to change how local sales tax revenue is distributed that McCrory vigorously opposes, and a proposal to reform Medicaid that McCrory’s appointees at DHHS don’t support.

And to add insult to injury, Senate President Pro Tem Phil Berger told reporters that he does not see the need for a transportation bond issue—another top McCrory priority—preferring instead to stop budget transfers out of the highway fund to raise money for highway projects.

It is the latest reminder that the folks running the Senate believe they are in charge in North Carolina regardless of what the governor of their own party believes.

NC Budget and Tax Center

The state Senate unveiled a proposal yesterday that would take the modest revenue gains that our state is experiencing and give them away in the form of tax cuts rather than reinvest them in the building blocks of community well-being. That would be a mistake. Lawmakers already deeply cut revenue collections in 2013 and this plan would double down on those cuts and flawed strategy.

The proposal would hand out more costly tax cuts to large, profitable corporations, lower the personal income tax for the third time, and slightly expand the sales tax to more services—all at the expense of everyday North Carolinians. It will neither enable the state to replace the worst cuts enacted in the aftermath of the recession nor restore the state’s economy to a sound footing, as my colleague explained yesterday.

The cost of the Senate leadership’s proposal grows to nearly $1.1 billion per year once the plan is fully phased in.* That cost is roughly the amount of money that the state invests in the entire Community College system, which serves all 100 counties and is tasked with preparing today and tomorrow’s workforce. Over the next biennium alone, revenue losses would total $951 million. That means a lost opportunity to catch up, rebuild, and keep up with the needs of children, families, and communities across the state.

All North Carolinians will the pay price. The graphic below illustrates the potential reach of those revenues and highlights how the revenue could instead be reinvested in things that benefit us all. Read More

Falling Behind in NC, NC Budget and Tax Center, Raising the Bar 2015

A tax plan state Senate leaders presented this week would promote neither shared economic opportunity nor prosperity across North Carolina. Far from it.

The proposal would cost more than $1 billion in annual revenue loss as the tax plan continues down the path of handing out more costly tax cuts to large, profitable corporations at the expense of everyday North Carolinians. This approach won’t restore the state’s economy to a sound footing.

The proposed tax plan does nothing about persistent stagnant wages, an uneven economic recovery in which all gains are going to the wealthiest North Carolinians, and the lack of economic and job growth in many parts of the state. Senate leaders would pay for only a portion of the income tax cuts by having North Carolinians pay more in sales taxes, which hit people making relatively low incomes the hardest. And the state would continue to walk away from its responsibility to make much-needed investments in our public schools, public colleges and universities, repair the state’s eroding infrastructure, and other building blocks of a strong economy.

Key aspects of the Senate tax plan stand out as strong reasons why its adoption would fail to promote broad prosperity.

  • The proposal’s reduction of the personal income tax rate to 5.5 percent from 5.75 percent has no benefits to the state’s economy or its competitiveness. At the cost of much-needed public revenue, the tax rate cut won’t drive significant job creation, motivate businesses or people to locate in North Carolina or encourage local investment. Not only do income tax rates affect these factors negligibly, if at all, North Carolina’s personal income tax rate is already in line with the region’s, falling in the middle among southeast states.
  • While putting a limit on how much in itemized deductions a taxpayer can claim is good policy, using the added revenue this produces to reduce tax rates isn’t. Because this proposal would place all itemized deductions—mortgage interest, charitable contributions, medical expenses, etc.—under the cap, it creates greater equity in the treatment of taxpayers. Capping itemized deductions reduces revenue loss from these deductions and helps address inequities in the tax code, as wealthier taxpayers typically benefit more from deductions.
  • Increasing the standard deduction is a wasteful way to address the problem of too many North Carolinians struggling to make ends meet because it deprives the state of much-needed public resources that could boost public investments that promote economic growth. A better way to help hard-working taxpayers keep more of what they earn is to adopt a strong refundable state EITC to help offset not only income taxes, but sales and property taxes that fall hardest on those with lower incomes.

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News

This week the Senate kicks into high gear as it hammers out the final details of its budget proposal, and one likelihood is coming into sharper focus—Senators will probably propose spending a lot less on education than their counterparts have in the House.

Senate budget writer Harry Brown (R-Jones, Onslow) told the News & Observer this weekend that the Senate will likely release a plan that spends $500 million less than what House lawmakers agreed upon in their budget last week.

So what does this mean for public schools?

Spending targets released last week suggest that the Senate could propose shelling out $167.7 million less on education next year than what the House proposed in the budget that they passed last week — a figure that assumes any teacher pay raises the Senate springs for would be handed down from a separate pot of money, according to the *Budget & Tax Center’s policy analyst Tazra Mitchell.

“The Senate targets set the bar low for education,” said Mitchell.

Most of the proposed increase in spending for education would likely be eaten up by funding projected student enrollment growth, leaving behind just a little more than $1 million for other classroom expenses.

“With the Senate plan, we couldn’t rebuild classrooms — there would be no way to meaningfully reduce class sizes, boost professional development that improves students’ learning outcomes, and we couldn’t recoup the 7,000 state-funded teacher assistants we’ve lost since FY2009,” said Mitchell. Read More

NC Budget and Tax Center

Last week, the North Carolina House of Representatives approved a $22.2 billion state budget plan, which is overall a modest step towards building an economy that works for all North Carolinians. The budget represents a 5-percent increase over current year spending and the highest level of investments since the official economic recovery began in 2009.Yet, the plan still falls short of pre-recession levels of investments, fails to replace years of harmful cuts, and does not reflect all that’s needed to foster inclusive economic growth.

Unfortunately it is now clear—based on newly released spending targets—that the Senate is poised to severely limit spending rather than follow the House’s lead on making modest improvements. Low spending targets may be linked to the Senate leadership’s desire to “significantly” cut income taxes even further—a move that would hinder reinvestment in programs and fail to generate promised economic returns.

The Senate’s low spending targets make plain the shortsightedness of such an approach. For example, investments in public schools would only increase by .013 percent after accounting for enrollment growth. School systems and students would have to go without essentials that support academic achievement and completion, hindering the long-term growth potential of the state.

As the Senate moves forward in the budget process, budget writers should keep and build upon the House’s planned investments in the things that build a more inclusive economy so the state can better position itself to be competitive. Further deep tax cuts hinder lawmakers’ ability to achieve this goal. Below is a list of ten examples of economy-boosting investments and policy changes that the House included in its budget plan. Read More