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NC Budget and Tax Center

Members of the Kansas Center for Economic Growth are visiting North Carolina this week to share what has happened in Kansas following massive tax cuts signed into law by Governor Brownback back in 2012. Kansas has become a case study of the grave consequences resulting from a dogged pursuit of tax cuts as an economic growth strategy. The results are not that good.

In 2012, Kansas enacted tax cuts that were considered among the largest ever enacted by any state. Tax cut proponents in other states – including North Carolina state lawmakers – held Kansas up as a model to be replicated. Accordingly, North Carolina state lawmakers followed Kansas’ path and passed huge income tax cuts in 2013 that largely benefited the wealthy and profitable corporations and significantly reduced available revenue for public investments.

For Kansas, the reality in the wake of the costly tax cuts has been nothing to write home about. Here are some low-lights of Kansas’ experience, accordingly to the Center on Budget and Policy Priorities.

  • Deep income tax cuts caused large revenue losses. Kansas’ tax cuts last year cost the state more than 10 percent of the revenue it uses to fund schools, health care, and other public services, a hit comparable to a mid-sized recession. The revenue loss is expected to rise to 16 percent in five years if the tax cuts are not reversed.
  • The tax cuts delivered lopsided benefits to the wealthy. Kansas’ tax cuts didn’t benefit everyone. Most of the benefits went to high-income households and taxes were even raised for low-income families to offset a portion of the revenue loss.
  • Kansas’ tax cuts haven’t boosted its economy. Since the tax cuts took effect at the beginning of 2013, Kansas has added jobs at a pace modestly slower than the country as a whole. Furthermore, the earnings and incomes of Kansans have performed slightly worse than the U.S. as a whole as well while the number of registered business grew more slowly in 2013 than in 2012.

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NC Budget and Tax Center

The ongoing, raging debate at the federal level regarding tax changes highlights the contrast between the proposals being put forward by President Obama and Congress for developing a budget and supporting the economy. The President would like to provide tax cuts to middle-income taxpayers – by enhancing the Child Care Tax Credit and the Earned Income Tax Credit, for example. Congress, by contrast, would like to repeal the federal estate tax, for example, which would benefit the wealthy.

The estate tax is essentially a tax on very large inheritances by a small group of wealthy heirs. An estate must have a value of $5.4 million (after related debt is accounted for) before the estate tax applies. Only the estates of the wealthiest 0.2 percent of Americans – roughly 2 out of every 1,000 people who die – owe any estate tax.

A repeal of the estate tax amounts to a massive windfall for those heirs. Proponents often claim that the estate tax hurts small farmers and businesses by forcing people to sell their family farm or business. In North Carolina we have heard this claim despite no evidence presented to support the claim. Still, proponents have continued to make the claim over the years, as Dean Baker at the Center for Economic and Policy Research notes. In the early 2000s, the American Farm Bureau Federation, a leading advocate for repealing the estate tax, could not cite a single example of a farm lost because of estate taxes.

North Carolina state lawmakers latched onto this false claim back in 2013 to repeal the state’s estate tax. Read More

Commentary, NC Budget and Tax Center, Raising the Bar 2015

Raising the Bar in North CarolinaEditor’s note: The following post by Beth Messersmith, NC Campaign Director with MomsRising.org, is the latest installment in “Raising the Bar,” a new series of essays and blog posts authored by North Carolina leaders highlighting ways in which North Carolina public investments are falling short and where and how they can be improved.

This week found my husband and I scrambling to make sure we had all of our I’s dotted and our T’s crossed as we hurried to make sure we had our taxes filed on time.

As he sat watching us from the couch, my almost ten-year old remarked about what a bummer it is to have to pay taxes. His sister stopped doing cartwheels across the living room long enough to agree and opine that she was glad that she didn’t have to pay them out of her allowance.

I guess I shouldn’t have been surprised. Anti-tax rhetoric is everywhere in the weeks leading up to tax day. Just that morning on the way to school the deejay on the morning radio show was talking about how much he hates paying taxes.

But their remarks were enough to make me stop my hunt for receipts and pull the kids onto the couch to talk to them about why —as a parent and a part of this country —I don’t mind paying taxes. In fact, I see it as part of my duty as someone who loves this country and benefits every single day from the investments we make as a society. And why, as a parent, I feel especially grateful for the investments we make in our children.

We started off by talking about their schools and the things that make schools work. They listed off their teachers, their supplies, the buses, even the buildings. Then I asked them who they thought owns our schools and employs our teachers. They’d never really thought about it. Explaining it to them gave me a chance to talk about how taxes are actually investments in our community and, in the case of schools, in the futures of the children who attend them. I shared how I benefited from public schools even before they were born as a student myself, as an employer looking to hire qualified people, and as a community member who benefits from an educated society. Read More

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Gov. Pat McCrory unveils his recommended 2015-17 state budget

Governor Pat McCrory unveiled his recommended $21.5 billion budget Thursday, which continues his promise to boost beginning teacher salaries up to a minimum $35,000 a year but does not provide significant increases for veteran teachers and makes yet another cut to the state’s university system.

“We’re changing the basic paradigm of how we evaluate and distribute our limited tax dollars,” McCrory told reporters Thursday. “The new paradigm is directing our monies toward where we’re having the highest attrition, where the greatest need is and based upon the market performance…we’re really speaking in a different paradigm that’s more market-oriented than civil service oriented.”

More than half of McCrory’s 2015-17 recommended state budget is devoted to education. An additional $200+ million is spent on fully funding student enrollment growth in K-12 education over the next two years, and around $84,000 is tagged for increasing beginning teacher salaries from $33,000 (which the General Assembly approved last year) to $35,000 beginning this fall.

While veteran teachers did not receive significant pay bumps in spite of the fact that many say they were cheated out of raises during last year’s much touted teacher pay raise, McCrory’s new budget director, Lee Roberts, emphasized that eligible teachers would still move along the newly-enacted state salary schedule if McCrory’s budget passes.

The old salary schedule for teachers had previously been frozen, Roberts said. The state’s new system provides teachers with pay bumps every five years.

McCrory’s budget hits the University of North Carolina system with a 2 percent funding decrease, also known as “allowing flexibility to achieve efficiencies.”

That cut comes on top of years of budget cuts to the state’s strapped universities. In addition, universities would also be capped at $1 million with regard to how many state dollars they can spend toward private fundraising efforts.

McCrory told reporters that he’s consulted with UNC leaders.

“We’ve talked to the university leaders about this and what they like is the flexibility we’re giving them, said McCrory. “Instead of the politicians out of Raleigh telling them how to find savings, we’re giving them the flexibility to do that.”

The word flexibility was a commonly used one in today’s budget reveal.

“In the past, they’ve [UNC] gotten the directive of what to reduce or increase out of Raleigh. Those days are ending. We want to give that flexibility to our universities and our community colleges and, by the way, our superintendents,” McCrory said.

Other education-related takeaways from the Governor’s budget: Read More

NC Budget and Tax Center

Some legislators want to severely limit the resources the state can invest in schools and other needs and are considering arbitrary formulas to guide those decisions, even though we are already doing less with less. State investments as a share of the economy would be $3.2 billion higher if North Carolina caught up to 2008 levels. That means the Governor and legislative state budget writers have a lot of catching up to do to replace what was lost while also keeping up with the growing needs of a growing state. Tying our hands with artificial limits on how much we can invest is a road to ruin.

The goal of these arbitrary formulas is to radically restrict state spending and shrink the reach and effectiveness of critical public services, regardless of need or cost. One example is a formula that would limit year-to-year growth in total state spending to the rate of inflation plus population growth. Automatic spending limits—as well as caps on year-to-year revenue growth—are sold as common-sense measures, but in reality they are not a responsible way to measure the cost of providing basic government services. Instead, such limits merely ensure perpetually insufficient funding and never allow policymakers to replace the cuts enacted in the aftermath of downturns.

Case in point: inflation, as measured by the Consumer Price Index, doesn’t accurately reflect the cost of providing public services overtime. That’s because the CPI measures changes in the cost of goods and services that urban households purchase—not changes in the cost of public goods that benefit all of us. Read More