Tax shiftThe lead editorial in this morning’s Charlotte Observer offers a compelling explanation and critique of yesterday’s “April surprise” in which state leaders announced that North Carolina has eked out a 2% budget surplus. The bottom line explanation: the Great Tax Shift in which average folks are paying more and the rich and corporations are paying less. Here’s the Observer:

“News of a surplus is indeed cause for relief. But before GOP leaders dislocate their elbows in over-exuberant back patting, let’s look closer to see how they achieved it….

The returns are in. And the numbers don’t point to an expanding economy as the main cause of the huge swing from deficit projections to surplus. Instead, the memo [from the legislature’s Fiscal Research Division] noted that tax refunds dropped by 57 percent this year (not the 35 percent predicted). It was by far the biggest drop-off in 25 years.

Personal income tax collections surged, giving the state $375 million more than the staff expected. Some of that came from bigger collections in small business income. No surprise there, since tax reform killed the $50,000 business income exemption such establishments enjoyed.”

GOP leaders say lower tax rates will draw more corporations and jobs to the state. But the new-found surplus didn’t come from new-found corporations. Wage growth is expected to be 1 percentage point below forecast for the current budget year, the memo says, and withholding tax revenue is projected at 3 percentage points below forecast. Corporate income tax and franchise taxes moved up only slightly since the staff’s February budget projections.

That means surging collections from small businesses and individual taxpayers – not corporations – turned the deficit forecast into a surplus.”

The editorial closes this way:

“GOP leaders say refunds are shrinking because they made paycheck withholding more accurate. The state’s keeping less of your money through the year. Even if true, that doesn’t change the bottom line fact that personal income tax revenue has surged.

Make no mistake. We do believe the state needs more money for schools and other public investments. But its leaders are lifting money from everyday taxpayers’ pockets while seeking praise for supposedly putting more money in them.

And for that sleight of hand, perhaps they do deserve a round of applause.

A sarcastic one.”

Read the entire editorial by clicking here.

Commentary, NC Budget and Tax Center, Raising the Bar 2015

Raising the Bar in North CarolinaEditor’s note: The following post by Beth Messersmith, NC Campaign Director with, is the latest installment in “Raising the Bar,” a new series of essays and blog posts authored by North Carolina leaders highlighting ways in which North Carolina public investments are falling short and where and how they can be improved.

This week found my husband and I scrambling to make sure we had all of our I’s dotted and our T’s crossed as we hurried to make sure we had our taxes filed on time.

As he sat watching us from the couch, my almost ten-year old remarked about what a bummer it is to have to pay taxes. His sister stopped doing cartwheels across the living room long enough to agree and opine that she was glad that she didn’t have to pay them out of her allowance.

I guess I shouldn’t have been surprised. Anti-tax rhetoric is everywhere in the weeks leading up to tax day. Just that morning on the way to school the deejay on the morning radio show was talking about how much he hates paying taxes.

But their remarks were enough to make me stop my hunt for receipts and pull the kids onto the couch to talk to them about why —as a parent and a part of this country —I don’t mind paying taxes. In fact, I see it as part of my duty as someone who loves this country and benefits every single day from the investments we make as a society. And why, as a parent, I feel especially grateful for the investments we make in our children.

We started off by talking about their schools and the things that make schools work. They listed off their teachers, their supplies, the buses, even the buildings. Then I asked them who they thought owns our schools and employs our teachers. They’d never really thought about it. Explaining it to them gave me a chance to talk about how taxes are actually investments in our community and, in the case of schools, in the futures of the children who attend them. I shared how I benefited from public schools even before they were born as a student myself, as an employer looking to hire qualified people, and as a community member who benefits from an educated society. Read More

NC Budget and Tax Center

For those wonks out there following the details on how these tax plans are going to impact North Carolinians across the income distribution we have put together this short piece on the different tools that can be used to describe who pays. By far, the economic incidence model is the best way to estimate population-level impacts.  That is the model that the Budget & Tax Center has used.

While some have said that these tax plans benefit everyone based on what will happen to select individual taxpayers, it is important to be clear that some will see their taxes go up. The infographic below shows just a few examples of who those taxpayers could be.

infogrfk- House-Senate Plan_Layout 1

Most importantly, though, the debate over who will be impacted by tax changes should be grounded in the best available tools and an economic incidence model can give us the best information about how the population overall will fare after tax changes have been made.

NC Budget and Tax Center

The Senate’s historically unprecedented $1 billion-a-year tax cut passed out of the Finance Committee yesterday, moving steep reductions in personal income tax rates and outright elimination of the corporate income tax one step closer to becoming law.  While legislative leaders spoke glowingly about reducing North Carolina’s income tax rates to below those in other southeastern states, they remained conspicuously silent on how those other states have dealt with keeping their own income taxes so low–by increasing property taxes or sales taxes (or both).

This raises an important question—will North Carolina’s state income tax cuts simply lead to higher property taxes and sales taxes?

Read More