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SmokeIn an allusion to the signal that’s seen in the Vatican when the leaders of the Catholic Church elect a new Pope, at least one news media report this morning is talking about “white smoke” being visible on Jones Street. The story accompanying the headline, of course, is that leaders of the North Carolina General Assembly signaled over the weekend that they have agreement on the framework of a state budget deal. Assuming it really comes to fruition, the agreement comes a full month into the 2015 fiscal year.

A closer look at those puffs of smoke, however, reveals them to bear a notably blue tinge — that is, the kind one typically see with an engine that’s leaking oil and about to blow. As Alexandra Sirota details in the post immediately below and Chris Fitzsimon highlights in this morning’s “Monday Numbers,” one important impetus for the agreement would appear to be the latest calculations of the General Assembly’s Fiscal Research Division staff that the income tax cuts enacted last year are harming state budget revenues even more than had been officially forecast – i.e. more along the lines of what the Budget and Tax Center has been predicting all along.

So, keep in mind a couple of things this week as lawmakers and the Governor are falling all over themselves to issue statements of  self-congratulations:

1) Notwithstanding their rosy claims, the engine driving state government — the tax system — remains cracked and badly in need of an overhaul.

2) The current proposed solution — rolling up the window and ignoring the smoke — will provide only a temporary solution at best.

Jobs11-5During the debate over last year’s billion-dollar-a-year tax cut plan, supporters made a lot of big promises about the supposed economic benefits of cutting corporate and personal income taxes for wealthy individuals and highly profitable corporations. The problem—as many warned at the time—is that tax cuts almost never live up to their promises.

And that’s the point made in a recent piece by the well-respected Fiscal Times. In order for the tax proponents’ claims to be true, North Carolina would have needed to generate job growth that is significantly better than other states and the national average. According to the Fiscal Times:

The trouble is that the promised job growth hasn’t really materialized.

To be sure, with the U.S. economy as a whole adding jobs at a pace of 250,000 per month, there aren’t many states seeing a downturn in employment anymore. But the promises that went along with the tax cuts and reduced spending weren’t about keeping up with the rest of the country, but about surging ahead.

The Fiscal Times examined the job creation record of North Carolina and two other states that have experimented with deep tax cuts—Kansas and Wisconsin—and found that:

The dramatic tax cutting doesn’t appear to have done nearly as much for job growth as promised.

Wisconsin and Kansas, for example, have actually lagged the national average in job creation since their big tax cuts and budget cuts were enacted:

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A recent Washington Post story confirms once more that the anti-taxes, anti-government policies of the conservative leaders running Kansas continue to backfire.

“Gov. Sam Brownback of Kansas took to the pages of the Wall Street Journal last month to tout the success of his economic program, particularly several rounds of income tax cuts amounting to the largest in the state’s history. ‘We supported small business by taking away all income taxes on small businesses,’ Brownback wrote, ‘allowing them to reinvest in their businesses, creating jobs and growth. … By giving these companies more money to reinvest in their businesses, we are enabling them to hire more people and invest in needed equipment.’

The only problem? That job growth hasn’t exactly materialized. In fact, as Josh Barro notes in a must-read over at The Upshot today, job growth in Kansas has actually lagged behind the U.S. average, especially in the years following the first round of Brownback tax cuts in 2012.

As the story also notes, the latest finding echo those of a March report from the Center on Budget and Policy Priorities which found that: Read More

State budget negotiations will spill over into next week as lawmakers remain at odds over Medicaid and the best approach for funding raises for teachers and state workers.

Rep. Verla Insko believes legislative leaders may have a difficult time reaching a consensus after last year’s budget cut taxes “too much, too fast.”:

“One of the proposals this year was to reduce funding for children with intellectual and developmental disabilities,” explained the Orange County legislator. “Why would you take a population that deserves help and needs help and remove [services]?”

“The economics is what we talk about a lot…but the real sad thing is we don’t think about the impact on human beings.  These are our children and our community, and we are undermining their ability to have a productive life.”

Rep. Insko appears this weekend on N.C. Policy Watch’s News & Views to discuss the budget, school vouchers, and support for the university system.

For a preview of her radio interview with Chris Fitzsimon, click below:

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Click here for more on how the Senate and House budget proposals would impact programs for young children and working parents.

Local communities across North Carolina are already feeling the impact of recent tax policies and budget decisions made by state policymakers. A recent news article quotes a Pitt County commissioner lamenting disapproval with the state pushing off on local governments what they should be funding. Indeed, the tax plan passed last year results in self-imposed budget challenges today that will continue for years ahead, resulting in continued state funding cuts to core public investments that serve as the foundation of economic prosperity.

We at the Budget & Tax Center have traditionally talked about the net revenue loss under the tax plan, but that masks something important that happened when policymakers overhauled the tax code. The tax plan passed last year shifts responsibility for funding core public investments to local governments, in part, by recapturing some of the shared revenue from state sources that went to local governments to meet their obligations.

One example of this shift was the decision to repeal and eliminate the allocation of a portion of corporate income tax revenue dedicated to the School Capital Building Fund (SCB Fund), created in the late 1980s to assist local governments in meeting their public school building capital and technology equipment needs. Prior to the tax change, a portion of revenue generated from the state corporate income tax went to the SCB Fund. That practice ends under the tax plan. Over the next five years, this tax change takes away $382 million from local governments who used the revenue to improve education facilities in their communities. Read More