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NC Budget and Tax Center

State lawmakers are targeting cash-strapped homeowners as they continue to pursue tax changes that would shift even more of the tax load to low- and middle-income taxpayers, while preserving tax benefits that have largely flowed to the wealthy and profitable corporations.

Legislation approved by the state Senate (Senate Bill 20) would require homeowners to pay state income tax on mortgage debt forgiven by lenders. Meanwhile, financial institutions that provide such consumer relief are allowed to deduct the expense as a tax write-off.

The proposal would undermine a key element of North Carolina’s recovery from the nationwide housing crisis that fueled the Great Recession. In the wake of the crisis, a number of financial institutions  agreed to  settlements that provide consumers relief for unaffordable mortgages. This often meant reducing the amount of principal debt they owed on their mortgages to make them more affordable and lessen the likelihood of foreclosure. Furthermore, the 49-state National Mortgage Settlement encourages mortgage servicers to provide such relief to distressed borrowers affected by the housing crisis.

The goal of these settlements is to ensure that homeowners who were preyed upon by unethical lenders do not fall into the financial tailspin that foreclosure often creates. The tax change proposed by the Senate would require cash-strapped homeowners who have already suffered from the disastrous housing crisis and economic downturn to report this debt forgiveness as income, even though no actual cash is provided to the homeowners.

This could deter families from accepting bank offers to modify their mortgage loans because they cannot afford to pay taxes on the amount of relief they get. Distressed homeowners seeking to stabilize their finances and rebuild in the wake of the housing crisis would face a major setback. Read More

Commentary

North Carolina needs serious policy solutions that create real jobs, but if the new economic development legislation unveiled yesterday is the route the state is going, it looks like jobless workers are going to be kept waiting awhile.

After weeks of closed-door negotiations, the House unveiled the NC Competes Act (HB 117), legislation which included a provision doubling the amount of money the state could spend on the state’s primary business incentive program, the Job Development Investment Grant and renaming it the Job Growth Reimbursement Opportunities People Program. This program provides public dollars to “incentivize” private sector firms to create jobs and increase capital investment.

Unfortunately, the program has not always delivered on its promises, and until it is fixed, it is unlikely that spending more money on it will improve its effectiveness in creating jobs.

Read More

NC Budget and Tax Center

The flood of numbers associated with the state’s tax collections has created growing confusion.  However, what should not get lost in this confusion is that those numbers all converge on one truth: the tax plan passed in 2013 costs more than was originally projected and is likely to hamper our state’s ability to reinvest as the economy recovers. Yesterday’s announcement by state officials that the consensus revenue forecast expects revenue to be $271 million short of projections for the current fiscal year confirms the challenges ahead.

So here is a break down on the numbers.

The total cost of the tax plan is approaching $1 billion for the current fiscal year that runs from July 1, 2014 to June 30, 2015. This number measures the difference between the amount of tax revenue the state would have collected under the old tax structure and what the state is collecting under the new tax plan. The new tax plan was originally estimated to reduce tax revenue by $512.8 million for the current fiscal year, but that estimate is proving to be far lower than what we’re seeing today. BTC’s original estimates suggested that the total cost of the tax plan could reach $1 billion by the end of the current fiscal year. Read More

Commentary, NC Budget and Tax Center

In case you missed it, economist Patrick McHugh at the Budget and Tax Center, poked some new and truck-sized holes yesterday in the glowing tale of a “Carolina Comeback” that continues to be spun by state leaders. As McHugh reports, worker wages remain stuck in the mud even as corporate profits soar:

A strong recovery should mean bigger paychecks. And yet, wage growth has been decidedly lackluster in the last several years, a sure sign that North Carolina’s comeback is far from complete. Despite corporate profits being at an all-time high and productivity increasing, the recovery has not translated into improved earnings for the average worker….

The latest data from December 2014 shows that across the state average wages have remained flat year over year and in eight of the state’s fourteen metro areas average wages have fallen. Economists generally say that wage growth needs to be at least 3.5 to 4 percent to deliver returns to worker’s paychecks or at least to ensure that labor is enjoying a stable share of the benefits of a recovering economy….

While average nominal wage growth was stronger from 2009 to 2011 in North Carolina, since 2012 nominal wage growth has been negative or flat year over year. Indeed for North Carolina workers, wage growth of 4 percent year over year since 2009 would have meant that the median worker would have been earning $3.00 more each hour in 2014.

The failure to achieve strong wage growth means that many North Carolina workers continue to struggle to keep up with rising costs and basic family needs….Until earnings growth improves, the strength of the economic recovery remains in question and the share of benefits that are going to workers limited.

Read the entire brief by clicking here.

News

srs-unemployment3While it is positive news that fewer North Carolinians were unemployed in 2014 than in 2013, the reality is that we are still far from pre-recession employment rates.

As the Budget and Tax Center pointed out a in a release today:

Despite the decline in metro area unemployment year over year, there were still more unemployed North Carolinians in nearly all metro areas in December 2014 than there were in December 2007.

The latest data from the BTC’s County Labor Market Watch and Recession Watch shows that:

Many counties were better off in December 2007 than December 2014. There are still 24 North Carolina counties with unemployment rates higher than what they had in December 2007. There are 60 counties that had more unemployed workers in December 2014 than they did in December 2007, and 72 counties had fewer people in the labor force this past December than in December 2007.

Based on the data, slightly over half of North Carolina counties have an unemployment rate that is higher than the statewide 5.5 percent unemployment rate. Graham County at 12.3 percent has the highest unemployment rate in the state. These numbers are evidence that while the employment situation is improving in some counties, others are clearly not getting the help they need to recover from the recession.

“Any approach to badly needed economic development must consider this uneven recovery,” said Alexandra Forter Sirota, director of the BTC. “Lawmakers must pursue tools that deliver targeted support to grow opportunity in communities that continue to struggle now seven years after the start of the Great Recession.”