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NC Budget and Tax Center

Yesterday evening, members of the Senate Finance Committee gathered to consider a modified version of House Bill 1050 (HB 1050) which includes repealing the local privilege tax. A repeated claim by proponents of the tax repeal is that additional revenue from the local sales tax – resulting from the tax plan passed last year – will make up for the revenue lost from repealing the local privilege tax.

A closer look at a fiscal note provided by the General Assembly’s Fiscal Research Division, however, highlights that the math simply doesn’t add up to support this claim.

Fiscal Research estimates that a full repeal of the local privilege would result in nearly $63 million in less revenue for cities and counties across the state. Revenue from an expanded local sales tax is projected to bring in an about $10.9 million in additional annual local revenue and sales taxes from online sales via Amazon is expected to bring in around $2.9 million – for a total of $13.8 million in local revenue from an expanded sales tax.

Local Privilege Tax Repeal

It is clear that $13.8 million in additional local sales tax revenue is not sufficient to replace $63 million in lost revenue from the repeal of the local privilege tax. Less revenue means local governments will likely be further challenged with providing its residents with core public services and an attractive quality of life.

NC Budget and Tax Center

The Senate Finance Committee is scheduled to convene at 7 PM tonight to consider a modified version of House Bill 1050 (HB 1050), which includes a provision that would restrict the ability of local governments to manage their budgets and public investments in their respective communities.

One provision, among many, within HB 1050 would repeal the local privilege tax beginning next year. State law currently permits local governing authorities to levy a local privilege tax on various businesses that engage in significant economic activities in their respective locales. Repeal of the local privilege tax would result in nearly $63 million in less revenue for public investments in cities and counties across the state.

State policymakers point to the tax plan passed last year as a way to offset the lost local revenue from repealing the local privilege tax. Particularly, proponents expect the expansion of the sales tax base to some services to generate additional revenue.

The proposed repeal of the local privilege tax means businesses would get a tax cut that will be paid for largely by middle- and low-income North Carolinians who pay more of their income in sales tax than higher income taxpayers. And if the local sales tax fails to generate sufficient revenue to make up for lost revenue from repealing the local privilege tax, local governments will either have to find revenue in other places (e.g. increase local property tax rate), reduce the level of services provided to residents, or a combination of both.

Cities and counties, like the state, faced tough budget decisions during the economic downturn and recovery. They are relying on revenues to catch up and keep up with the needs of their residents. This bill puts that progress at risk.

Changes to the local privilege tax could have been made in a way that held local governments harmless, as was done in tax modernization proposals back in 2009 and earlier; however, policymakers chose this path. Under this tax change, local governments could become further challenged with providing its residents with core public services and an attractive quality of life.

NC Budget and Tax Center

Tax cuts never live up to the extravagant promises of job creation and economic growth so often made by their supporters, and last year’s tax reductions are unlikely to turn out any differently. The most recent example is Kansas, which enacted massive tax cuts in 2011. Two years later the state has experienced slower job growth than the national average, contraction in the number of businesses employing people, and loss of its AAA bond rating resulting from its catastrophic, 50% loss in revenue.

While there remains no consensus among academic economists that tax cuts are a strategy to grow the economy—instead, evidence is mounting of their harm—some think tanks keep trying to play the same hand to get a different result. One example is the Beacon Hill Institute, which has frequently deployed its State Tax Analysis Modeling Program (STAMP) during tax cut debates in various states across the country, including last year in North Carolina. Using this model, Beacon Hill claims to show that lowering taxes, or refusing to raise them, will benefit state economies. In the case of North Carolina, they also went a step further to claim that all income groups get a tax cut on average.

A new report from the Institute on Taxation and Economic Policy reveals a number of serious flaws in the STAMP approach that undermine the accuracy of its claims. In doing so, it calls into question the rosy scenario Beacon Hill paints for tax-cutting states like North Carolina.

Follow me below the fold for are some of the problems identified by ITEP:

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The April employment numbers released Friday show that North Carolina’s unemployment rate is continuing to drop, with 6.2 percent of the state’s residents out of work and looking for jobs.

The drop is a full 2.2 percentage points lower than what it was last April, when 8.4 percent of the state’s labor force was looking for work.

Republican Gov. Pat McCrory, in a written statement, hailed the unemployment drop as a success, but said more progress is still needed.

“We continue to see encouraging signs in North Carolina’s economy with each month that passes,” McCrory said.

Today’s job numbers (click here to read the whole report) show that the state added 14,000 from March to April, and that the overall labor pool (which includes those on the job and those actively looking for work) also grew by about 10,000 from the previous month.

Here’s a quick glimpse of the number’s released today by state commerce department’s labor and economics division:

jobsnumbersapril

Source: N.C. Commerce Department

 

The larger meaning of jobs report data have become heated topics in policy and political circles, with sometimes competing theories about what the steady drop of unemployment in the state means.

The state’s labor pool is significantly lower (by 33,005 people) than it was a year ago, a circumstance that has led some, including the N.C. Justice Center’s Budget and Tax Center, to point out that many of the state’s long-term unemployed stopped looking for work and are not being accounted for in federal labor data. That comes after the state slashed both the length and amount of unemployment people can collect as part of an extensive overhaul of the unemployment system last year.

The state is also seeing huge disparity in different regions when it comes to unemployment, with areas surrounding the economic powerhouses of the Triangle and Charlotte showing low unemployment while more troubled areas still have counties with unemployment topping 10 percent.

Dare, Edgecombe, Graham, Hyde  Scotland and Swain counties all had unemployment rates over 10 percent in March. (Note, these numbers are not seasonally-adjusted, unlike the statewide numbers released today.)

Supporters of that unemployment reform policy, including McCrory and other Republican leaders, say the drop in benefits may have spurred many of the jobless to accept jobs they wouldn’t otherwise have looked at.

The Washington Post had this national perspective on the shrinking labor pool last year, finding that the contracting stems from a combination of the baby-boom generation entering into retirement, younger workers headed back to school and the long-term jobless throwing up their hands.

Here’s a great explainer from the New York Times earlier this month about how federal jobs data (which is released every month and is based on surveys) can fit a number of different narratives (economy better, economy worse, more jobs, less jobs) and all be right.

From the aptly-tilted article, “How Not to be Mislead by the Jobs Report“:

We obsess far too much on the Labor Department’s monthly jobs report.

Think about it this way: It’s the first Friday of the month, and the Labor Department has bad news. The economy has added a mere 64,000 jobs last month, a steep slowdown from 220,000 the month before. From Wall Street to Twitter, the reaction is swift and negative.

The price of oil falls, as do the prices of blue-chip stocks like General Electric. The Federal Reserve faces calls to push interest rates lower. The lead headlines in the next day’s papers talk of faltering job growth.

But what if all the worries were based on nothing more than random statistical noise? What if the apparent decline in job growth came from the inherent volatility of surveys that rely on samples, like the survey that produces the Labor Department’s monthly employment estimate?

 

You can read more here.

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(Cross-posted from the CEPR blog)

At the beginning of 2014, thirteen states increased their minimum wage. Of these thirteen states, four passed legislation raising the minimum wage (Connecticut, New Jersey, New York, and Rhode Island). In the other nine, the minimum wage automatically increased in line with inflation at the beginning of the year (Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Vermont, and Washington state).

Last month, CEPR looked at state-by-state employment growth in the first two months of 2014, highlighting these 13 minimum wage-raising states for easy comparison. Using new employment data from the BLS, we can now update these figures with data from the month of March.

Below, the chart shows the percentage change in employment for each state. The baseline is the average of the October, November, and December 2013 employment figures, which were measured against the average employment level for 2014 (January, February, and March). Overall, the findings are even more positive than last month’s employment figures. We see, again, little to no evidence for the claim that raising the minimum wage threatens job creation efforts. Read More