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NC Budget and Tax Center

This piece was originally featured on Women AdvaNCe’s blog and is cross-posted here.

Working Tar Heel moms are never off the clock. From laboring at the workplace all day to tucking kids in at night, we put in a lot more than a full day’s work. Much of the work is tireless, thankless, and unpaid. But for the paid work, every dollar moms work for is hard earned. These are some of the many reasons why we celebrated moms this week.

Flowers and breakfast were great, but this Mother’s Day we needed to keep our sights on what’s happening in Washington, D.C. Congress can help 750,000 moms right here in North Carolina by making permanent improvements to tax credits that put money back into the pockets of moms who’ve earned it. Without action from Congress, these credits expire at the end of 2017.

The state’s economy is experiencing a boom in low-wage work—a trend that is falling disproportionately hard on women. For more than 21 million working moms across the country, including 763,000 in North Carolina, the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) are important tools that help them make ends meet in today’s economy. By offsetting income and sales taxes, these credits boost income, support work, and reduce poverty—especially among children.

Allowing moms to keep more of what they earn also helps keep poverty in check. Read More

NC Budget and Tax Center

Last week, state officials announced that revenues are estimated to come in $400 million above projections set by the state. This is good news for North Carolina, as we previously noted, but it’s important to remember that it is a relatively small boost that doesn’t come close to covering the cuts to services made since the recession and is likely one-time money driven by the improving national economy, not North Carolina’s tax code. These considerations are timely as the House plans to fast track its budget, with the goal to release and approve a proposal by the end of next week ahead of the holiday weekend.

Most importantly, this revenue announcement will not come close to addressing the challenges that state budget writers face. There remains a very deep level of underinvestment in schools, higher education, and communities, and lawmakers’ choice to pass cut taxes that primarily benefit the wealthy and profitable corporations in 2014 and again in 2015 means that there are far fewer dollars available to position the state competitively.

Here are a few things about the revised revenue estimates that state lawmakers should keep in mind as they work on the state budget:

  1. A surplus means we have more than we expected, not that we have more than we need.

Read More

NC Budget and Tax Center

Once again, sober analysis shows that tax cuts don’t create prosperity. A report out today looks at how states that cut personal income taxes have fared in the years that follow; the answer is, not that well. Bold promises about tax cuts are usually followed by harsh realities. Here are a few of the key results:

  • Job growth slower than the nation in 4 of the 5 largest tax cutting states in recent years. North Carolina is actually the one state that did outperform the nation since the recent tax cuts, but that means that its not the tax cuts that are doing the work. For example, Kansas passed even larger tax cuts that North Carolina did, and it has lagged behind the nation, and behind most of its neighbor states, since then.
  • Personal income grew more slowly in 4 of the 5 states that cut personal income taxes the most in the last few years. Even with anemic income growth nationally, most of the states that cut personal income taxes were sub-par performers. This includes North Carolina, where the average worker has seen the value of their wages slip further behind the national average.
  • The five states that cut taxes the most aggressively in the 1990s did worse than the rest of the country during the next economic expansion (2000-2007). Some tax cut cheerleaders say we simply need to be patient, that the good times will come, but that not what the data say. States that cut heavily in the 1990’s saw an entire economic cycle come and go without growth taking off.

Of course, none of this is a surprise to people who pay attention to history. Most rigorous studies have found that cutting state taxes has little or no effect on economic growth. Businesses are worried about a long list of costs before they consider the personal income tax rate, so its not a game changer for where they decide to invest. Likewise, people don’t suddenly decide to work harder because they stand to earn a few more cents on the dollar, particularly if they have to pay most of that back in higher sales taxes, worse schools, or deteriorating roads. Cutting personal income taxes in not a magic elixir, but expecting it to cause an economic boom is magical thinking.

NC Budget and Tax Center

I recently noted the differing approaches of President Obama and Congress regarding tax changes, developing a budget and supporting the economy. In particular, I noted Congress’ push to eliminate the federal estate tax – which applies to very large inheritances by a small group of wealthy heirs.

Over the years, the amount of inheritance that is exempt from the federal estate tax has increased exponentially while efforts to raise the minimum wage in line with the growing costs of meeting basic needs have stalled.

In 2001, the federal minimum wage was $5.15 an hour and remained at that level until 2008 when it was increased to $5.85 an hour and then to $7.25 in 2010, where it remains today. On this issue, North Carolina has not differed from federal law, with a state minimum wage of $7.25 as well.

By contrast, in 2001, the amount of estate inheritance that could be exempt from the federal estate tax was $625,000. By 2008, this exemption amount increased to $2 million and for 2015 the exemption amount is $5.43 million. In 2013, North Carolina state lawmakers completely eliminated the state’s estate tax (only 23 North Carolina taxpayers paid an estate tax for the 2012 tax year). In the same year state lawmakers eliminated the state Earned Income Tax Credit, which helped more than 900,000 low- and moderate-income taxpayers who earn low wages keep more of what they earn to offset an already regressive state tax system. Read More

NC Budget and Tax Center

The March employment numbers out today show another month of positive, but relatively lackluster economic performance in North Carolina. The unemployment rate in North Carolina has now been essentially flat for the last five months and the number of unemployed North Carolinians has actually increased in the first three months of 2015.

According to analysis of the latest labor market data by the Budget & Tax Center, employment levels have edged up in the last year, but are still well below the pre-recession norm. In fact, a smaller share of North Carolinians have a job today than during the worst of the recession that followed the 9/11 attacks.

“The North Carolina economy has been idling along for several months and continues to be weaker than it was in 2007,” said Patrick McHugh of the North Carolina Budget and Tax Center. “The worry now is that we’ll see a new normal, with lower levels of employment and paychecks that don’t go as far.”

Other highlights of the March data include:

  • Unemployment rate not making gains: After falling dramatically from 2009 through the third quarter of 2014, the state and national unemployment rates have flattened out in recent months. Even while the state continues to add jobs, growth is not enough to push unemployment below the 5% threshold that most economists see as the top-end of a healthy labor market. Part of the flattening out may be attributable to people coming back into the labor force, which would be good news. However, it is still troubling to see the labor market falling well short of full employment.
  • Still more North Carolinians out of work than before the Great Recession: Even though the ranks of the unemployed have declined over the past year, there are still more than a quarter-million North Carolinians looking for work, approximately 10% more than at the end of 2007.
  • Percent of North Carolinians employed still near historic lows: March numbers showed 57.5% of North Carolinians were employed, which is up 1 percentage point from March 2014. However, this still leaves North Carolina well below the level of employment that was commonplace before the Great Recession. In the mid-2000’s, employment levels were generally between 62% and 63%. Moreover, the level of employment in North Carolina has fallen behind the national average, when the state was generally at or above the nation in the pre-recession period.

For more context on the current state of the North Carolina economy, check out a recent report that reviews the last seven years of economic data and the Budget & Tax Center’s weekly Prosperity Watch platform.