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New this morning from the wonks at the Center on Budget and Policy Priorities:

“Federal taxes on middle-income Americans are near historic lows, our updated report explains, and that’s true whether you’re talking about federal income taxes or all federal taxes.

When it comes to income taxes, a family of four in the exact middle of the income spectrum will pay only 5.3 percent of its 2013 income in federal income taxes next year, according to a new analysis by the Urban-Brookings Tax Policy Center….”

Read the rest of this post by clicking here.

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State income tax cutsMichael Leachman, one of the top fiscal wonks at the D.C.-based Center on Budget and Policy Priorities authored a very compelling post yesterday that makes clear why cutting (or, God forbid, eliminating) the state income tax is not the right path for North Carolina.

Leachman writes:

“A number of states, including Arkansas, Kansas, Missouri, North Carolina, Ohio, and Wisconsin, are considering deep cuts in personal income taxes to spur economic growth. But both recent history and empirical studies suggest that this approach doesn’t work particularly well, as our new report explains.

First, let’s look at recent history.  Of the six states that cut income taxes sharply between 2000 and 2007 (when the recession hit), three grew more slowly than the rest of the country in the years that followed.  The other three saw above-average growth, but they are major oil-producing states (Louisiana, New Mexico, and Oklahoma) that benefitted from a sharp rise in oil prices. Read More

NC Budget and Tax Center

Some members of General Assembly have repeatedly claimed that elimination or deep cuts to personal income tax rates, especially on high-wealth individuals can solve our high unemployment and sluggish economic growth.

New research from the Center on Budget and Policy Priorities released this morning finds that pursuit of such policies are not worth the risk.

After comparing the economic performance of those states that pursued deep cuts in the 1990s and 2000s and those that did not, it turns out high tax cut states have grown far slower. Read the full report for details.

 

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In Kansas, tax reform isn’t exactly playing out the way some lawmakers had hoped.  The state that Grover Norquist once called “the starter gun for tax competition” has passed a series of income tax cuts over the past year with the stated goal of eventually eliminating income taxes altogether in the near future.  This “race to zero” is well underway in several states with conservative governors and legislatures.  Here’s a quick look at how that’s working out so far for Kansas:

A $2.5B budget shortfall

The Kansas Legislative Research Department is projecting a $2.5 billion revenue hole through 2018 because the legislature has yet to figure out an effective way to replace lost revenues as a result of the income tax cuts.

A threatened credit rating

Last month, a state court ruled that the Kansas legislature was breaking the law by underfunding public schools as a result of the income tax cuts, which prompted Moody’s Investors Service to warn of a negative credit risk for the state.

Less funding for public services

Concerns over the state’s credit rating aren’t the only thing that should give Kansans pause.  By starving public schools and other services critical to economic success, the state is jeopardizing future growth. Read More

NC Budget and Tax Center

In light of Arthur Laffer’s visit to North Carolina this week, a new analysis by the Institute on Taxation and Economic Policy on the Civitas/Laffer study for our state is particularly timely. 

Their main findings are that the report:

“• Fails to control for a large range of important non-tax factors that affect state economic growth.

Confuses cause and effect by assuming that declines in personal income in 2008 were due to taxes rather than the Great Recession.

Fails to examine the impact of increased sales taxes on the economy.

Makes claims that have been previously discredited by mainstream economists and relies on misleading and cherry-picked data.

Ignores the importance of taxes in financing public investments that have a far greater positive impact on economic growth than reducing tax rates.”

Check out the report in detail here.  It adds to the mounting evidence that the Civitas/ Laffer/Senate proposal is a bad one for North Carolina, not least because its case is not supported by the rigorous research needed for undertaking such a radical overhaul of the state’s tax system.