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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.

 

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

Many North Carolina workers are locked in low-wage jobs that don’t pay enough to make ends meet, even though they’re working full-time. Over the long-term, state lawmakers need to implement a comprehensive strategy that creates pathways out of this low-wage economy. But right now, they can provide an immediate boost to working families by increasing the minimum wage from the current level of $7.25 an hour. Raising the wage floor would put more money in the pockets of workers, increase sales for local businesses, and strengthen the state’s overall economic performance, without increasing unemployment, according to a new fact sheet released by the Justice Center yesterday.

Most importantly, raising the minimum wage benefits adult workers and their families, providing a critical antidote to the ongoing boom in low-wage jobs. Almost 6 out of every 10 new jobs created since the end of the recession are in industries that pay poverty-level wages. More than 80 percent of new jobs created since 2009 don’t pay enough to cover life’s necessities, including housing, healthcare, groceries, and gas costs. Raising the minimum wage would make the difference between destitution and self-sufficiency for thousands of workers on the bottom rung of the state’s labor market.

One critical effect of raising the minimum wage for these low-income workers is the boost to the entire economy that comes from putting more money in the pockets of large numbers of those workers most likely to spend it. For example, boosting the wage floor to $10 an hour would affect approximately 1 million workers in North Carolina. And because of the boom in low-wage work, the vast majority of those North Carolinians benefitting from the wage increase are no longer the part-time, teen-aged workers who once filled the bulk of entry-level jobs in past generations. Now, more than 85 percent of those benefitting from a minimum wage increase are workers older than 20 years of age, and more than half work full-time. A half-million children in the state would experience increased security thanks to their parents’ higher wages—a critical support given that North Carolina has the eighth highest percentage of children living in poverty in the nation.

As low-income workers spend their bigger paychecks, local businesses will benefit, growing the economy without hurting overall employment. Economists have repeatedly found that those states that increased their minimum wages have seen better economic performance, lower unemployment, and higher job creation rates than those states that didn’t raise their wages, controlling for regional economic trends. The evidence clearly and repeatedly contradicts critics who claim that increasing the minimum wage forces employers to offset greater payroll costs by reducing the number of employees.

In fact, raising the minimum wage creates more customers, more sales, and bigger profits. For example, recent studies have indicated that raising the minimum wage to $10 an hour would increase paychecks for North Carolina’s workers by $2 billion a year. That’s $2 billion in increased consumer spending at local businesses, boosting business sales, business profits, and creating more than 5,000 new jobs.

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NC Budget and Tax Center

There are lies, damn lies, and state business climate rankings.

Okay, that’s not exactly what Mark Twain said, but he might have been tempted to swap out statistics as the target of wit had he witnessed the recent proliferation of state business climate rankings.

Many of these rankings merely cloak ideology with the veil of science, as is the case with one of the worst offenders, Rich States, Poor States, which was released Wednesday.

The new report ranked North Carolina as the 4th most competitive state in the country, following a meteoric rise from the middle of the pack a few years ago.

Some leaders in Raleigh will point to this as evidence that tax cuts, slashed government spending, and reduced employee protections are making the state a better place to do business. There’s just one small problem: these rankings have almost nothing to do with economic reality.

First, a bit of background. The report is put out by the American Legislative Exchange Council (ALEC), a deep-pocketed organization dedicated to cutting government, ending progressive taxes, undermining workers’ protections, limiting the minimum wage, and generally opposing any move to make the market function in a more equitable manner. The report’s primary Author, Art Laffer, is widely seen as the inventor of supply-side economics, a theory that even former President George H.W. Bush described as “voodoo economics.”

Long story short, this report is designed to further a very specific policy agenda, not to take a sober look at what actually makes states economically competitive.

Given the agenda behind the report, it is hardly surprising that past rankings have almost completely failed to predict actual economic performance.

A thorough analysis from Good Jobs First showed that, at best, state rankings in 2007 had no relationship with how state economies performed from 2007 through 2011. In fact, good rankings on the ALEC scale were more likely to be a sign of bad things to come. For example, growth in per capita income was actually slower among states that ALEC had ranked as the most competitive. The same was true for median household income and total non-farm employment.

ALEC has convinced far too many decision-makers that its rankings actually capture competitiveness. Rankings are often intuitively appealing, particularly when you are predisposed to agree with the worldview of the authors, but that’s the danger of ALEC’s recent rankings.

They have the trappings of science (lots of charts, tables, and numbers) but none of the intellectual rigor that real economic analysis requires. If past performance holds true, North Carolina’s surge to the top of the ALEC ranking portends problems not prosperity.