NC Budget and Tax Center

What’s at stake in today’s Supreme Court hearing on immigration – family integrity and a lot of worker income

The US Supreme Court hears oral argument today in the case of Texas v. United States, a challenge to the Obama Administration’s executive order to protect the parents of U.S. citizens and legal residents from deportation, commonly known as DAPA.

If upheld, DAPA will allow several million of immigrant parents nationwide to step out of the shadows, which enables them to fully participate in their local economies, and could raise the wages of North Carolina workers — immigrant and US-born alike. As we reported last year, DAPA alone could increase North Carolina workers’ income by over $150 million per year and lift over 5,000 children out of poverty.

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NC Budget and Tax Center

Prominent economist connects the dots between underemployment and stagnant wages in NC

While the first storm of winter was heading our way yesterday, prominent economist Jared Bernstein discussed a low pressure system of a different type, how the persistent failure to achieve full employment is pushing wages down and contributing to growing wealth inequality.

Drawing on his work on the importance of full employment, Dr. Bernstein discussed how underemployment is responsible for much of the wage stagnation we have seen in recent decades. Particularly as attacks on organized labor have reduced the power of workers to directly pressure employers for better pay, and with a lack of political will to increase the minimum wage, workers’ only tend to see better pay when employers have to actively compete with each other to attract employees. When the economy isn’t creating enough jobs, and a large pool of unemployed people are desperate to find work, employers are not compelled to increase wages, which is precisely what we have seen in recent years.

Unemployment with Missing WorkersThe problem of underemployment depressing wages is not unique to North Carolina, but it is particularly pressing here in the Tar Heel state. Included in our End of the Year Chartbook for 2015, the two charts included here indicate that the dynamic Dr. Bernstein identified is alarmingly active here in NC. First, if we include all of the “Missing Workers” who were forced out of the labor pool during the recession due to lack of jobs, the real unemployment rate in North Carolina is likely still in the double figures. With so many people still looking for work, employers in many industries are not raising wages, which means that workers are receiving less of the value they create.NC Workers Receiving Less of the Value they Create

Dr. Bernstein argued that we don’t have to accept this state of affairs. There are policy responses that could get us closer to full employment and deliver wage growth, but a lack of political will at both the state and federal levels is preventing those remedies from being administered. So long as state leaders pursue tax cuts instead of raising the minimum wage, expanding educational and workforce investments, and wage supports like the Earned Income Tax Credit, Dr. Bernstein worries that we will continue to see inflated unemployment and wage stagnation and miss the critical opportunity to make the economy work for more people.

NC Budget and Tax Center

Resolve to Act in 2016

We have our work cut out for us in 2016. Over the last few days we released a series of charts that capture the key economic stories of the past year. To see the full series of charts, visit the Justice Center’s Facebook page. Given the short and long-term economic challenges we face, public policy choices will determine whether we build an economy that works for everyone.

Your Resolve to Act in 2016 can bring prosperity to more North Carolina homes.  By staying up to date on economic trends, sharing information with your networks and communicating directly with your elected officials, you make sure that the choices are clear in the policy debates that this year will hold.

Resolve to act in 2016 because our economy isn’t creating enough jobs. If we counted all of the people who have left the labor market over the last several years because there are not enough jobs to go around, unemployment in North Carolina is likely still north of 10%. Even those who have been able to find work represent a smaller share of North Carolinians with a job than before the recession started. Unfortunately, economic reality has not yet produced a change of course in Raleigh. Many elected leaders continue to believe that tax cuts will solve our economic ills, in spite of the fact that state’s like California and Massachusetts that focus more on investing than cutting have seen stronger recoveries than North Carolina or our neighbors to the south. Read more

NC Budget and Tax Center

Prosperity Watch: Hard work not paying off for single moms

In another sign of an economy that is leaving too many people behind, the share of low-income working families headed by single women is on the rise, suggesting that hard work just isn’t paying off for single mothers–especially African American single mothers. For more details, see the latest issue of Prosperity Watch.

NC Budget and Tax Center

Facts matter about the tax “reform” debate

When making important decisions, people have a right to the best possible information. Facts, not ideology, should drive our policy agendas. This is especially true on budget and tax issues, which affect everyone in North Carolina.

Unfortunately, John Hood’s recent column on the NC General Assembly’s tax changes is replete with bad information. Warning: some wonky details follow.

The Budget & Tax Center uses rigorous methods and accurate modeling strategies that are endorsed and used throughout the economic forecasting industry – including by conservative and centrist groups.

Here’s the thing about making tax changes: there will always be winners and losers.  That’s why it takes careful thought, engagement of a diverse set of stakeholders and consideration of a range of data points and methods. Efforts to establish a reasonable estimate of what will happen as a result of the plan will always be estimates, but policymakers should have the best information available to them as to the direction and magnitude of the impact of their decision.

In the current tax debate, policymakers had two separate types of analysis at their disposal.

  • The sample taxpayer scenarios developed by the state’s Fiscal Research Division. This gives examples of how particular taxpayers will fare under tax changes.  These can be fine tools, but are inherently limited. They pick out particular taxpayers and can’t show you that everyone – or even most people — will have the same experience. The results can’t be extended to everyone in particular filing types, and certainly not­­ to the population at large.

Using this tool alone, as tax plan backers did, is like trying to fix your car using only a screwdriver. Yet even using this limited tool shows that proponents’ claims that everyone will benefit from tax changes is flatly false. That’s right, according to non-partisan Fiscal Research, and even according to the conservative Tax Foundation, there will be taxpayers who pay more under the tax plan.

  • The other type of tool that policymakers could use was an economic incidence model, like the kind that the Joint Committee on Taxation uses, that has been developed by the Institute on Taxation and Economic Policy. The Budget & Tax Center used this model to provide population-level estimates of the impact of tax changes. This is a far better tool than the limited sample scenarios, since it provides an overall summary of the experience of all taxpayers.

Analysis showed that the bottom 80 percent of taxpayers would experience a tax increase on average.  The findings take into account the rough swap of electricity and natural gas from the gross receipts franchise tax to the sales tax, as well as the privilege tax changes for amusements. The findings take into account a household’s total income in order to reflect ability to pay the tax.  The findings also take into account the base broadening of the sales tax.

The model is consistent with real-world experience. First, consumers will pay more indirectly because of changes businesses make to their prices to accommodate for the sales tax changes. The Council on State Taxation — not a group one would call a bastion of progressive views — finds that 40 percent of total sales tax collections are paid by businesses. Second, multi-state, profitable businesses — the bulk of corporate income taxpayers — are going to pass their tax cut on to shareholders, not workers. Those shareholders are very unlikely to all be North Carolinians, meaning that money will flow out of our state.

Record corporate profits have not translated into higher wages for the past thirty years, so why would we assume that a corporate income tax cut is going to all of a sudden give corporations a change of heart and decide to boost their workers’ wages?

In desperation, proponents often turn to the argument that this is going to create jobs.  But not only is there no economic consensus that this is a good strategy for growth, states that have tried it have not seen the promised employment expansion – though they have seen high incidence of poverty. We can’t import the oil production capacity of Texas or the coal mines of Tennessee, so why should we import their model that drives poverty through the roof?

When we juxtapose these two decisions — huge tax cuts for the wealthy versus a “just wait, it’ll all work out” message for working families – we can see the human cost of a serious policy mistake. Pretending that economic evidence supports these choices just compounds that serious mistake.