The truth about sequestration

Two excellent (and brief!) new documents from the wonks at the NC Budget and Tax Center detail the specific impacts of the sequestration cuts that are hitting today and a responsible path out of the mess:

Click here to read “Just the facts: Fixing sequestration requires balance approach, new revenues.”

Click here to read “Taking a balanced approach: Four revenue options for fixing sequestration.”

Of course, both documents presuppose that lawmakers would want to use logic in solving the problem — something that seems increasingly unlikely given the central role of people like this in deciding what happens.


Congresswoman Ellmers appears to endorse sequestration cuts

The Washington Post reports that the sequester confrontation in Washington is a “moment of truth” for the Tea Party. The story also quotes Congresswoman Renee Ellmers as endorsing the disastrous cuts sequestration will bring about.

“Rep. Renee L. Ellmers (N.C.), who is part of the 2010 class of Republicans but not a member of the tea party caucus, said she worries about the sequester, especially since her district, home to Fort Bragg, would be hit hard. But she said it may have to happen.

‘I do believe it will start a very important process that will help our economy to start to grow,” she said. “The debt that we have at the federal level is our biggest threat for our country.’”

NC Budget and Tax Center

Finance Committee Increases Tax Load for Working Families, Cuts EITC

This morning, the House Finance Committee voted to reduce the state Earned Income Tax Credit (EITC) provided to low-income working families across the state. More than 883,000 North Carolinians claimed the credit in 2010, which provides working families with dollars to spend in their local communities. Each year the state updates its tax code to address changes made to the federal tax code during the previous year, as North Carolina’s tax code is linked to the federal tax code.

Improvements to the federal EITC were extended as part of the fiscal cliff deal, including eliminating the marriage penalty and extending the credit to larger family sizes. In decoupling the state credit from the federal credit, the Finance Committee voted to reduce the state EITC from 5% to 4.5% of the federal credit for tax year 2013. The result is a cut of $11 million to the state credit.

The EITC helps boost the wages of low-income families and helps them pay for basic necessities. Cutting the tax credit will further challenge the ability of these families to make ends meet and minimize its ability to address the upside down nature of our state and local tax system. The House finance committee also voted to cut the Work Opportunity tax credit. However, the committee did vote to increase the amount of itemized deductions that individuals can claim, which would largely benefit high-income individuals.

NC Budget and Tax Center

Government spending cuts responsible for 4th quarter economic contraction

It turns out government spending is the problem with the economy—there’s been too little of it over the last few months, according to Wednesday’s report from the U.S. Bureau of Economic Analysis (BEA).  

Gross domestic product (GDP) dropped by 0.1 percent during the 4th quarter of 2012, the first GDP contraction in three years. While this would ordinarily seem an ominous sign for the health of the nation’s economic recovery, most economists and market-watchers have argued that the contraction is temporary and likely the result of government policy, rather than signs of a long-term downturn.   

Specifically, the fourth quarter contraction is due to sharp reductions in government spending on national defense contracts coupled with a $40 billion drop in business inventories resulting from the same policy environment.

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