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NC Budget and Tax Center

As Congress debates solutions to the “fiscal slope,” the future of the Bush Tax Cuts on incomes over $250,000 continues to play a pivotal role. Allowing these tax cuts to expire will provide over $1 trillion in new revenues—a key component of a balanced approach to deficit reduction—yet we consistently hear that taking this approach will disproportionately harm small business “job creation” and long-term economic growth.

As a new policy brief clearly demonstrates, these concerns have little merit—allowing these tax cuts to expire will have virtually no impact on the kind of small businesses that genuinely contribute to job creation. The specific tax changes under discussion would allow the 2001 and 2003 tax cuts on incomes above $250,000 to expire in 2013, thus changing the top marginal tax rate from 36 percent to 39.6 percent.  According to the report, allowing the upper income tax cuts to expire in this way would affect only small percentage of small business owners and small business income, and even those few would see no significant barrier to capital reinvestment and job creation as a result.

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NC Budget and Tax Center

Over the last three months of this year, Congress faces the critical challenge of addressing the scheduled expiration of $5 trillion in tax cuts passed under Presidents Obama and Bush, currently slated for January 2013.  In addressing this challenge, Congress will have to decide who needs the most help. So the real question is:  Who will have a better 2013, moms or millionaires?

A study released today from the Center on Budget & Policy Priorities lays out the perils of helping millionaires at the expense of helping moms.  Eliminating the expansion of middle-class tax credits like the Earned Income Tax Credit, the Child Tax Credit, and the American Opportunity Credit will increase the burden for half a million families and over 1 million children. Moms rely on these credits to meet the needs of their families.

Congressional proposals geared towards helping millionaires instead would increase the deficit by over $1 trillion while providing enormous benefits for just a handful of the state’s residents. Only 1.4% of the state’s families and 2.5% of the state’s small businesses will benefit from the extension of the Bush-era tax breaks. Only 140 families—less than 0.2% of the state’s population—would benefit from the proposed inheritance tax cut. Their average tax cut would exceed $1 million, in contrast to the $2,000 in tax credits a poverty-line family of three would receive under the Senate plan.

Given the state’s rising unemployment and a stagnating economic recovery, eliminating these credit expansions and increasing the burden on working moms and families would be the worst possible policy to pursue. Let’s help moms instead of millionaires.

NC Budget and Tax Center

When Congress finally returns from its August recess 10 days from now, it will face the critical issue of addressing the looming expiration of the tax policies enacted under President Bush and President Obama.

In this debate, we’ve heard a lot about the effect of tax changes on small businesses, job creation, and long-term economic growth.  Fortunately, the overwhelming weight of evidence makes it clear that ending tax breaks on income over $250,000 will not harm small businesses or North Carolina’s economy.  Middle-class consumption drives job creation far more than relatively minimal changes in marginal tax rates, and most importantly, there just aren’t that many small businesses in North Carolina that would even be affected by these tax changes.

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CNBC is in the process of unveiling its “Top States for Business 2012″ and once again, North Carolina ranks very high. This year, we’re fourth — down from last year’s ranking of third.

This is from David Bracken at Raleigh’s News & Observer:

“The Tar Heel state ranked highest in infrastructure and technology, workforce, technology and innovation and business friendliness. The state’s ranked lower in the health of its overall economy and its quality of life.”

Got that? We rank high, as always, when it comes to “business friendliness,” but lower when it comes to “quality of life.” In other words, the conservative “let’s copy Mississippi” approach to state  development (i.e. slashing taxes even further and reducing outlays for essential public structures like education, environmental protection and preservation, the arts and urban planning has been shown, yet again, to be sadly shortsighted.

 

NC Budget and Tax Center

Despite the recent improvement in the state’s unemployment rate, North Carolina’s economy is still experiencing only sluggish job creation, needing to generate 532,500 jobs just to return to pre-recession employment levels while keeping up with population growth.  As a result, job creation should continue to remain a critical priority for our state’s elected officials, especially through the support of small businesses, one of the state’s key engines for long-term employment growth.  Between 2005 and 2008, small firms with fewer than 100 employees on payroll created more than 80% of new private sector jobs.

Unfortunately, groups as diverse as the National Federation of Independent Businesses and the North Carolina General Assembly have reported a critical barrier to small business development—too many small businesses lack access to the financial capital necessary for expanding operations and hiring new employees.  And nowhere is this shortage of capital more problematic than in the state’s lower-income communities, according to a recent report by the Support Center, a recently re-branded, nonprofit community development financial institution geared towards increasing lending to small businesses and long supported by the state budget.

According to the report, large-scale commercial banks (those with more than $1 billion in assets) account for the vast majority of loans made to small businesses, but at the same time, small business loans are making up increasingly small shares of these banks’ total asset portfolios.  Moreover, these banks tend to lend to larger businesses, especially those in the state’s higher-income communities, and are significantly less involved in supporting smaller businesses (those less than 20 people) and those located in low-income communities.  The numbers bear this out—the amount of investment by commercial banks is 250% greater in high-income neighborhoods than in low-income neighborhoods.

When seeking loans from traditional banks, many of these smaller firms, and particularly those in North Carolina’s low-income neighborhoods, lack both access to traditional lines of credit and—more critically—sufficient equity to put up as collateral, a necessity for securing most commercial bank loans.  As a result, commercial banks are typically unwilling to take on the risk of lending to these businesses, which in turn hampers the ability of these firms to expand and create jobs.

Community development lenders like the Support Center seek to fill the void left by commercial banks gap by taking on the greater risks associated with lending to very small businesses in the lowest income areas.  Moreover, these community development lenders also provide technical assistance to these firms, helping build their capacity for better business development.  According to the Center’s report, more than a quarter of community development lending occurs in low- and moderate-income neighborhoods, where otherwise access to traditional bank lending would be impossible.