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“Healthywealthy” by threestooges.net. Licensed under Fair use of copyrighted material in the context of Healthy, Wealthy and Dumb via Wikipedia

No, this post is not an attempt to personally disparage the folks running North Carolina government. Rather it is an attempt to conjure up an image that captures the impact of the decisions that state leaders have been inflicting of late on their brethren and sistren at the local level.

As some readers will recall, The Three Stooges were an outlandish and slapstick comedy trio that had a long run in the middle part of the last century. In one of the trio’s recurring bits, one Stooge (usually Moe – pictured on the left) would slap or punch the second Stooge, who would then, in turn punch the third member of the group. The third and most hapless Stooge would then turn beside him and find that he only had thin air to punch.

Sadly, this comedy bit pretty well captures the essence of what’s going on in North Carolina government right now: Whether it’s the McCrory-Pope team or the General Assembly that starts the punching, the ones left flailing at thin air are local governments.

For the latest classic example, check out the bill under consideration in the state Senate during the waning days of the 2014 session that would hamstring local governments in their ability to raise local sales taxes for important needs. While Senators sought to alter some of the the impacts of the bill last evening, it still promises to have a deleterious impact — especially on big counties like Wake and Mecklenburg. And, of course, this comes on the heels of several previous haymakers in which state leaders have slashed state support for locals.

The bottom line is that the overarching policy of the current conservative state leadership when it comes to local government is this: We’re all for local control that’s closest to the voters — except when we’re not (i.e. any time anyone at the local level even thinks about doing something — like raising taxes to provide essential public services — with which we disagree). SLAP!!!

ICYMI, the editorial page of the Greensboro News & Record pulled no punches this weekend in an editorial excoriating state senators for their last minute proposal to hamstring local governments when it comes to use of the sales tax for public services and structures at the local level. Here’s an excerpt from “Oddest idea yet”:

Republican state senators canceled a floor vote on a confusing sales-tax bill Thursday until they could get their stories straight. Which means it might not return.

Of all the heavy-handed directives the legislature has pushed down on local governments in the past couple of years — airport and water system takeovers, de-annexations, local redistrictings, elimination of privilege licenses — this one might be the most illogical.

The measure, which originated in the Senate Finance Committee without notice Wednesday, was presented as a means of giving counties additional tax flexibility. With voters’ approval, they could add to the local sales tax, designating revenue to schools or transportation projects.

But the strings attached tied everything in knots.

The legislation put restrictions on how new revenue could be spent — for education or for transportation, but not for both. It put a cap on the local sales-tax rate. And, perhaps most baffling, it required that if a county raised the sales-tax rate, it would have to raise it all the way to the cap….

The half-baked sales-tax bill, which also includes unrelated provisions boosting economic development efforts, was yanked from the calendar before the Senate adjourned for the weekend. Senators will return to Raleigh Monday, but the wacky sales-tax proposals ought to vanish as quickly as they appeared.

For more information on the proposal in question, click here for succinct summary.

A major detail has been ignored in the rush to adopt a flat income tax rate. With a flat income tax, revenues will grow more slowly over time, leaving North Carolina unable to maintain its most important investments, such as education, which has already suffered from significant spending reductions in recent years. That means we will have to raise other taxes to make up the difference or suffer the consequences of underfunding our priorities.

In the presentation to House Finance of the bill, Representative Lewis stated that the income changes–including most significantly the adoption of a flat tax–would hold revenue growth to about 4.5 percent per year. If revenue had grown that slowly over the past 20 years, North Carolina would have been unable to make  many of its most important investments. In 2007, for instance, North Carolina would have had nearly $5 billion less for North Carolina’s schools, colleges and universities, roads, public safety, and other services. That $5 billion is more than our budget combined for the Department of Health and Human Services, Department of Commerce, Department of Justice, Indigent Defense Services PLUS funds to address the NC pre-K waiting list and half of the child care subsidy waiting list. Read More

The House is taking a vote on the tax plan that was rushed through committees this week with little time for discussion of the real impact. This new House plan, like all the other plans proposed, will undermine North Carolina’s future by shifting taxes from the wealthy onto everyone else and will leave the state unable to make its most important investments.

Our full analysis of what this will mean for taxpayers can be accessed here. What does this tell us about the vote that House members are moments away from taking?

  • The top five percent will get tax cuts while the bottom 95 percent of taxpayers see their taxes increase, on average. This analysis is the most reliable way to assess what will happen to the population overall under this plan. It doesn’t cherry pick taxpayers with certain filing characteristics but summarizes the diversity of experiences under the House tax plan to tell us what the impact will be for a taxpayer on average in each income group.
  • The largest benefits of this plan overwhelmingly go to the top one percent. Millionaires would receive a tax cut of nearly $9,000. In fact, the small number of millionaires in this state would receive almost 40 percent of the total income tax cut that results from flattening the rate and removing the cap on charitable contributions.
  • The so-called “protections” for low- and middle-income taxpayers are ineffective and poorly targeted at those who are hurt by this tax plan. It will fail to shield those taxpayers from changing sales tax to services. The House tax plan combined with the end of the state’s Earned Income Tax Credit will raise taxes for taxpayers with an average income of $12,000 by 0.7 percent, while cutting taxes for taxpayers with an average income of $940,000 by -1 percent.
  • The House tax plan will cost the state $1.6 billion over five years. That means fewer dollars to invest in the foundations for economic growth—like K-12 and higher education—at a time when spending is already at historic lows.

Tax cuts for the wealthy paired with tax hikes for everyone else will not help North Carolina’s economy. But it will cost us our most important priorities.

Here’s the full story on the House tax plan: It will increase taxes for middle- and low-income households while giving a large tax cut to the wealthy. The bottom ninety-five percent of taxpayers would see their taxes go up, on average, under the bill version that will be heard in House Appropriations today.

Those who focus only on the income tax changes and say this is a tax cut for everyone are ignoring how the sales tax changes – a major part of this tax plan – will hurt average families. Those who are using data from the Fiscal Research division to extrapolate that the majority will see a tax cut are also mistaken. These claims only obscure the harmful impact of this tax plan on the majority of North Carolinians.

The House tax plan does provide an income tax cut to taxpayers across the income spectrum, but that’s not the whole story and still 27% of all taxpayers would see an income tax increase. The greatest cut goes to the top: More than third of the income tax cut goes to the richest 1 percent. But as all North Carolinians know, we don’t just pay income taxes; we also pay sales tax. That’s why we must look at income and sales tax changes in order to evaluate whether the House tax plans are good for our state.

The House tax plan expands the services that are subject to the sales tax. Because they spend a greater share of their income on taxable goods and services to meet their basic needs, middle- and low-income families will pay more of their income in sales taxes than the wealthy. In the House plan, the expansion of the sales tax is, on average, enough to cancel out the income tax cut, on average, for the bottom 95 percent of taxpayers. Read More