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


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.

NC Budget and Tax Center

For all of the positive growth numbers touted at the statewide level in the last year, the recovery ranges from partial to virtually nonexistent in many parts of the state. The headline unemployment rate dropped for most counties between February 2014 and this year, but unfortunately that is not a sign that all in well. As can be seen when you look at the current labor market conditions and how counties stack up to where they were before the recession, there are many communities where employment is still below pre-recession levels, some communities that actually lost jobs during the last year, and people looking for work outnumber job openings in most counties.

Most counties have not returned to pre-recession levels of employment. While the last few years have seen the state make some good economic strides as the national economy has continued to improve, it has not done enough to get most communities back to the level of vitality that existed before the Great recession. The majority of counties in North Carolina (70 out of 100), had fewer jobs in February 2015 than they did in 2007. In fact, the unemployment rate is still higher now than it was in 2007 in more than 80 counties across the state.

Unemployed people outnumber job openings in almost every county. Only 8 counties in North Carolina have at least as many job openings as unemployed people. Many counties have 2 or 3 unemployed people for every job opening, and in some counties there are as many as 5 or 6 unemployed people competing for every job. The number of people who are looking for work did come down in most counties from February 2014 through this year, but there are still far more people looking for work than there are jobs. In fact, roughly three-quarters of the counties had more people looking for work in February of this year than they did in 2007. There are still too few jobs for those who want to work which not impacts jobless workers but everyone as employers aren’t compelled to provide wage increases to keep or attract talent.

Many counties took a step back over the last year. While it is cause for pause that most counties have not returned to pre-recession levels of employment, the fact that almost half of the counties (47) lost employment from February of 2014 to February of 2015 is cause for a full-on double-take. 2014 was the strongest year for job creation since the start of the Great Recession, yet nearly half of the counties lost jobs during that time. That’s an extremely alarming sign. It is natural to expect some counties to grow faster than others, but a truly strong growth period should not be leaving so much of the state worse off.

All told, the February county labor market data show that North Carolina is not uniformly on the road to prosperity. There are pockets of very strong growth in and around the major metropolitan areas, but the labor market outside of the urban centers is much weaker. As the General Assembly talks about another round of tax cuts, and spending more on incentives, remember that these have been the proposed answers for several years, and they have not delivered the goods for many communities in our state.

Commentary, NC Budget and Tax Center, Raising the Bar 2015
Editor’s note: This is the latest installment in “Raising the Bar” — a new series of essays and blog posts authored by North Carolina nonprofit leaders highlighting ways in which North Carolina public investments are falling short and where and how they can be improved.We need an energy system that protects our vital resources and creates sustainable jobs. The good news is that North Carolina has great potential for such a system. The bad news is that the current budget takes us further from that goal, not closer to it.

The ongoing discussions of the 2015-2017 state budget provide a useful context for analyzing the health of our state’s economy. The budget’s treatment of the environment makes clear just how shortsighted the planning for economic development is in this state. Over the last several years, rather than pursue the myriad opportunities to leverage clean technology and innovation to protect our environment and spur job growth, the state budget has ignored the need to protect our state’s most valuable resources.

Since the Great Recession of 2008, cuts to North Carolina’s primary environmental regulatory body have constituted a wholesale assault on our state’s living environment. The scale and pace of cuts to the Department of Environment and Natural Resources (DENR) represent a structural dismantling of numerous regulatory bodies, diverting systems of revenue generation for the foreseeable future. If continued, these trends could spell disaster for North Carolina’s families. Instead, we should pursue a budgetary structure and job creation scenario that benefit both our economy and the planet by investing in renewable energy and energy efficiency, remediating current environmental degradation, and repairing existing infrastructure.

Our current reality, however, is far different. In 2009, 30 positions were eliminated from DENR. Over the next two years another 225 jobs were cut, but in Gov. Pat McCrory’s first year of office, while the economy was supposedly in recovery, another 131 positions went to the wayside, with 1,500 additional positions transferred out of the department over that same four-year period.

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