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NC Budget and Tax Center

We have our work cut out for us in 2016. Over the last few days we released a series of charts that capture the key economic stories of the past year. To see the full series of charts, visit the Justice Center’s Facebook page. Given the short and long-term economic challenges we face, public policy choices will determine whether we build an economy that works for everyone.

Your Resolve to Act in 2016 can bring prosperity to more North Carolina homes.  By staying up to date on economic trends, sharing information with your networks and communicating directly with your elected officials, you make sure that the choices are clear in the policy debates that this year will hold.

Resolve to act in 2016 because our economy isn’t creating enough jobs. If we counted all of the people who have left the labor market over the last several years because there are not enough jobs to go around, unemployment in North Carolina is likely still north of 10%. Even those who have been able to find work represent a smaller share of North Carolinians with a job than before the recession started. Unfortunately, economic reality has not yet produced a change of course in Raleigh. Many elected leaders continue to believe that tax cuts will solve our economic ills, in spite of the fact that state’s like California and Massachusetts that focus more on investing than cutting have seen stronger recoveries than North Carolina or our neighbors to the south. Read More

NC Budget and Tax Center

The holiday season is a time to reflect on our personal journey over the past year and spend time with family and friends. For many, it is also a time of compassion and willingness to help less-fortunate neighbors make ends meet and secure basic needs.Coming up short image

In Governor McCrory’s Thanksgiving video message, he spends a brief moment encouraging North Carolinians to think of and help people who are struggling to get by. It is rare for the Governor to lift up the plight of families in need. But, a small act of kindness is never wasted and his call for supporting our neighbors is welcome.

The big question remains, however: what have lawmakers done this past year to address poverty?  The scourge of poverty that exists in every Tar Heel community demands sustained and systemic attention. Very few lawmakers give people struggling with economic hardship the attention that they deserve—not in policy agendas, not at the policy tables, and not in public speeches.

These end-of-the-year-only messages that pop up about helping people in need remind me of that one uncle—and we all have one—who talks a big game at family holiday gatherings but lacks follow through when it matters most. Read More

NC Budget and Tax Center

You may have heard that North Carolina’s business climate is nearing top-10 status according a new ranking by the Tax Foundation, a tax policy research organization that favors tax cuts. If that sounds strange to you, it should.  Many of the inputs that businesses look to in order to succeed have failed to rebound after the recession because of neglect from state policymakers.

The 2016 State Business Tax Climate Index has many flaws that have been highlighted by critics over the years. It is clear, however, that one way to zip up the ranking is to simply cut taxes, often in ways that primarily benefit large multi-state corporations. And this result in forgoing the kinds of investments needed to improve the economic climate that allows all businesses and all North Carolinians to prosper.

As I’ve noted in a prior post, proclaiming that North Carolina’s business tax climate has leapt from one of the worst to now one of the best largely as a result of tax cuts provides no insight regarding the fiscal and economic health of the state.

Here are five reasons that the Tax Foundation rankings are the wrong foundation for making tax policy in North Carolina.

  1. Ranking focuses on cherry-picked tax policies that the Tax Foundation doesn’t like, rather than on the range of factors that genuinely drive business investment decisions.

The Tax Foundation index simply chooses elements of tax policy it likes best – e.g. a flat income tax rather than a progressive income tax structure – without solid empirical evidence as to the impact of favored tax policies on states’ economic growth. A flat tax income tax, for example, which the Tax Foundation favors, doesn’t take a taxpayer’s ability to pay into account and largely benefits the well-off. A progressive income tax structure, by contrast, considers ability to pay but is not favored in the ranking. Furthermore, states with relatively lower tax rates are favored without considering the impact of lower tax rates on their ability to raise adequate revenue for public services. The Tax Foundation mixes these selected tax policies together and labels the result a state’s “business climate.”

This sole focus on a state’s tax structure leads to an index that mistakenly assumes taxes are the most important factor in shaping states’ business climates and tells us nothing about a state’s economic health – like whether schools are good, higher education is affordable, roads and rails are in good shape, or the workforce has the skills needed for 21st century business. Read More

Commentary

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In case you missed it, be sure to check out today’s second installment in our new special report: “Altered State: How 5 years of conservative rule have redefined North Carolina.” “Public investment falls, tax responsibility shifts” is written by Alexandra Sirota of the North Carolina Budget and Tax Center and it documents the amazing shift that has occurred in how North Carolina funds government — a shift that has been engineered by the state’s conservative political leadership. Here’s the opening:

“Public investments are essential building blocks of long-term economic growth and shared prosperity. Decades ago, North Carolina diverged from its Southern neighbors by investing in good roads, quality public schools and universities and early childhood programs.

Since the official recovery began in 2009 — when rebuilding from the Great Recession would have been possible — state lawmakers have turned away from that tradition, choosing to sharply limit public spending in favor of tax cuts. Overall, state support for services in the 2016 fiscal year will be nearly a full percentage point below historic investment levels as a share of the economy.

"State spending as part of the economy — measured by state personal income — has consistently fallen in the past few years."— "A Summary of the Fiscal Year 2015–2017 Budget," BTC Reports, October 2014 (Source: N.C. Budget & Tax Center)

“State spending as part of the economy — measured by state personal income — has consistently fallen in the past few years.”— “A Summary of the Fiscal Year 2015–2017 Budget,” BTC Reports, October 2014 (Source: N.C. Budget & Tax Center)

In fact, state spending as a share of the economy — measured by state personal income — has fallen every year since 2009. The new budget continues this trend, and caps off the only period in more than four decades in which state spending declined as a part of the economy for more than five straight years.

The tax code has been radically transformed since 2010 in a way that makes adequate funding 0f core public services more difficult.

Click here to read the entire essay. And be sure to check back at the Altered State website tomorrow morning and each day through December 21. We’ll be rolling out new stories over the next two and a half weeks on everything from taxes to public education to environmental protection.

NC Budget and Tax Center

With the sounds of Small Business Saturday in the air, it’s a good time to take stock of how main street businesses in North Carolina have fared over the last several years. The end of the Great Recession certainly improved the prospects for small businesses, but the recovery here in North Carolina has had a decidedly big-business bent. Most small businesses have not seen the level of growth that their larger competitors have enjoyed during the recovery, a clear sign that we have not done enough to help Main Street to prosper.

Small Business Saturday Blog Post - NC Growth by Firm Size 2009-2015

As can be seen to the left, the fastest growth in employment during the recovery has occurred in larger businesses. The biggest businesses (more than 1000 employees) have expanded their collective workforce by more than 15% since 2009, the next largest set of establishments (between 500 and 1000 workers) by almost 12%. In contrast the smallest businesses in North Carolina have struggled to take advantage of the current period of prolonged economic growth.

The growth gap between larger and smaller businesses that we’ve seen in North Carolina has not happened to the same degree in many other states. Large firms have added jobs faster than smaller companies over the last six years nationwide, but the difference in North Carolina is much more pronounced. Growth for the largest US companies was twice that of the smallest, while here in North Carolina the largest companies lapped the smallest group five times.Small Business Saturday Blog Post - NC and US Growth by Firm Size 2009-2015

This imbalance is an economic problem because small businesses are the veins circulating capital through local economies. Owners with roots in a community often source more locally, spend more of their earnings nearby, pay better, and invest in their communities. All of that helps to keep money flowing around and creating jobs. None of this is to denigrate how many large companies can help communities, but when local businesses don’t prosper, growth doesn’t always translate into deeper economic health.

Recent economic results call for a different approach to supporting small businesses. Instead of continuing to focus on cutting the corporate income tax, which mostly helps big companies, we should be plowing more resources into programs that help small businesses get loans, find new customers, and retrain their workers. The General Assembly did take a few steps in the right direction this last session, like appropriating funds to The Support Center which makes loans to small companies. But, particularly compared to the tax breaks lavished on large companies over the last few years, the assistance provided to small businesses has not been up to scratch.

So when you hit the shopping trail this season, head to your local small businesses first, particularly if they pay their workers well, offer benefits, and are invested in your community. Big box stores have their place, and some are good corporate citizens, but it’s the small businesses in North Carolina that could use a boost.