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North Carolina needs serious policy solutions that create real jobs, but if the new economic development legislation unveiled yesterday is the route the state is going, it looks like jobless workers are going to be kept waiting awhile.

After weeks of closed-door negotiations, the House unveiled the NC Competes Act (HB 117), legislation which included a provision doubling the amount of money the state could spend on the state’s primary business incentive program, the Job Development Investment Grant and renaming it the Job Growth Reimbursement Opportunities People Program. This program provides public dollars to “incentivize” private sector firms to create jobs and increase capital investment.

Unfortunately, the program has not always delivered on its promises, and until it is fixed, it is unlikely that spending more money on it will improve its effectiveness in creating jobs.

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News

srs-unemployment3While it is positive news that fewer North Carolinians were unemployed in 2014 than in 2013, the reality is that we are still far from pre-recession employment rates.

As the Budget and Tax Center pointed out a in a release today:

Despite the decline in metro area unemployment year over year, there were still more unemployed North Carolinians in nearly all metro areas in December 2014 than there were in December 2007.

The latest data from the BTC’s County Labor Market Watch and Recession Watch shows that:

Many counties were better off in December 2007 than December 2014. There are still 24 North Carolina counties with unemployment rates higher than what they had in December 2007. There are 60 counties that had more unemployed workers in December 2014 than they did in December 2007, and 72 counties had fewer people in the labor force this past December than in December 2007.

Based on the data, slightly over half of North Carolina counties have an unemployment rate that is higher than the statewide 5.5 percent unemployment rate. Graham County at 12.3 percent has the highest unemployment rate in the state. These numbers are evidence that while the employment situation is improving in some counties, others are clearly not getting the help they need to recover from the recession.

“Any approach to badly needed economic development must consider this uneven recovery,” said Alexandra Forter Sirota, director of the BTC. “Lawmakers must pursue tools that deliver targeted support to grow opportunity in communities that continue to struggle now seven years after the start of the Great Recession.”

NC Budget and Tax Center

A new paper by UC Berkeley economist Danny Yagan provides further evidence that tax breaks that largely benefit the wealthy and profitable corporations are not a remedy for boosting the economy. In 2003, President George W. Bush passed one of the largest cuts ever to a federal capital tax rate – reducing the top tax rate on dividends to 15 percent from 38.6 percent. Using federal IRS data on corporate tax returns, Yagan compared corporations that benefited from this tax cut (C-corporations) to firms that didn’t benefit from the tax cut (S-corporations).

Corporations that got a massive dividend tax cut didn’t make any different choices about things that boost the real economy, the new paper highlights. The massive reduction to the federal dividend tax rate resulted in no meaningful change in corporate investment, net investment, or employee compensation for corporations. What did change following the huge dividend tax cut was an increase in payout to corporate shareholders. Simply put, the tax cut benefited corporate shareholders but not the overall economy.

Some lawmakers and outside groups in North Carolina are pushing to eliminate capital gains from state taxes. Governor McCrory recently announced his desire to eliminate the state’s capital gains tax for what he deems “innovation-related companies”. Either proposal to cut capital gains taxes would overwhelmingly benefit the wealthy at the expense of everyone else in the state, a recently released BTC report highlights. Proponents often claim that eliminating or reducing the capital gains tax rate will increase investment and help boost the economy. However, no apparent cause-and-effect relationship exists between changes in the top capital gains tax rate and savings, investment, or productivity growth. Instead, various analyses highlight how cutting capital gains tax rates have concentrated income at the very top. There is simply no reason to expect this reality to somehow be any different in North Carolina.

Bigger tax breaks for the rich while the state is cutting support for schools and other essential job-creation tools is not a path that promotes economic opportunity and prosperity for all North Carolinians. This new paper serves as yet more evidence that state lawmakers should reject calls to eliminate or cut capital gains taxes and instead work to make sure the wealthiest North Carolinians and profitable corporations pay their fair share.

Commentary

Veteran Raleigh journalist Seth Effron included the following fascinating chart in his daily “Quick Clips” this morning about the comparative success of Governors McCrory and Perdue in the field of job recruitment.

Commerce chart

 

In addition to in your email box, you can read Effron’s daily clips at Blue NC.

Commentary

mc-1Governor Pat McCrory emerged from his much-publicized meeting with a handful of other governors and President Obama at the White House  Tuesday breathlessly declaring that Obama is open to considering waivers to allow North Carolina to crafts its own version of Medicaid expansion under the Affordable Care Act.

But that shouldn’t be news to McCrory or anybody else.  Nine states, most of them with Republican governors, have already expanded Medicaid with waivers from the feds or have been in discussions with the Obama Administration about waivers for their own versions of the program.

Neighboring Tennessee is the latest state with Republican leadership to move forward, with Governor Bill Haslam unveiling a proposal for Medicaid expansion last month. 

Apparently McCrory had to fly to Washington to figure out that the Obama Administration was willing to work with state officials who are developing their own Medicaid plan.  Or maybe he just wanted us to know he was talking tough with Obama.

I presented a very strong argument for more flexibility if we even consider Medicaid expansion, so we can have a North Carolina plan instead of a Washington plan, and especially a plan that would encourage more people to get a job or get training before we expand another government program,” McCrory said after the meeting.

While it’s too bad it took McCrory much longer than many Republican governors to realize the Obama Administration was willing to work with the states to provide health care for people who need it, at least he seems to finally understand it.

There’s also the head-scratching logic that more people will have to get a job before Medicaid is expanded, as if only people who are working need to be able to see a doctor, not to mention the people with chronic illnesses whose lack of access to treatment prevents them from working in the first place.

But maybe now McCrory can get on with what he should have done already, following the lead of his Republican colleagues across the country by expanding Medicaid in North Carolina and providing health care coverage for several hundred thousand low-income people and creating thousands of jobs in the process. It is past time.