NC Budget and Tax Center, Raising the Bar 2016

Sound fiscal policy choices needed to build a stronger, more inclusive NC economy

This post concludes a series on the state budget featuring the voices of North Carolina experts on what our state needs to progress so that all North Carolinians have a fair shot to get ahead.

State lawmakers will return to Raleigh next week to convene this year’s short legislative session. One primary task for lawmakers is to revisit the state budget for the upcoming fiscal year that begins in July and make needed and desired revisions. More tax changes may also be pursued, which would have implications on what the final state budget looks like and whether spending priorities to meet growing needs can be met.

raise the bar

The desire for more income tax cuts by state leaders would build onto tax changes passed in recent years that have largely benefited the wealthiest in the state and that have significantly reduced revenue available for public investments.

A recently released BTC report highlights the tax swap that has resulted from recent tax changes. Costly income tax cuts have given tax breaks to the wealthiest and profitable corporations. Meanwhile, the sales tax has been expanded to include more goods and services, which particularly harms families and individuals that struggle to make ends meet. Consequently, this tax swap – a greater reliance on sales tax and less on income taxes – has shifted the tax responsibility to low- and middle income taxpayers and away from the well-off. Since 2013, the tax burden on low income taxpayers has increased by $30 on average while it has decreased by around $15,000 on average for millionaires.

The significant revenue loss from the tax cuts cannot be overlooked. The annual revenue loss once all tax changes are fully in place is at least $2 billion. These are dollars that otherwise would be available for the economy-boosting public investments that have been lifted up in the Raise the Bar blog series this week – investments such as reducing persistent Pre-K waiting lists, ensuring that public schools have adequate resources, making higher education more affordable, ensuring healthcare services for the elderly and poor, and helping ensure that economic growth extends to rural and distressed communities across the state.

The results are clear: Even as the tax swap delivers big tax breaks to the wealthy, it reduces resources available for public investments that build a strong economy. North Carolinians should be alarmed by state leaders’ short-sighted focus on tax cuts and their desire to continue North Carolina down this path. Sound fiscal policy choices are needed to build a stronger, more inclusive economy and a brighter future that all Tar Heels want and deserve. It is this vision of building an economy that works for everyone that should guide lawmakers’ decisions during the upcoming legislative session.

NC Budget and Tax Center

Providing meaningful teacher pay raise clashes with appetite for tax cuts

Gov. McCrory and state leaders have signaled intentions to include a pay raise for North Carolina teachers in their respective proposed budgets for the upcoming fiscal year that begins July 1, 2016. The specifics of what a pay raise will entail remains unclear. However, what is clear is that providing educators a meaningful raise conflicts with tax policy decisions in recent years.  The priority placed on cutting income taxes for the wealthy and profitable corporations mean that movement to the national average for North Carolina’s teachers will be next to impossible and that progress on teacher pay could come at the cost of other classroom investments critical to students’ success.

The Governor’s proposed teacher pay raise will cost around $250 million but would not get average teacher pay to the national average and would fall short of even leading the southeast region. In addition, because of other priorities highlighted by the Governor – additional funding for broadband connection for schools and more funding to support students with disabilities, among other initiatives – a sustainable way to fund all of these critical investments in classrooms is unlikely. Accordingly, the Governor providing a way to pay for these proposals is critical to ensuring that they can be sustained. And that means revisiting the planned phase-in of reductions to the personal and corporate income tax rates in future years.

Tax cuts enacted since 2013 that largely benefit the well off and profitable corporations will reduce annual revenue by more than $2 billion once all tax changes are fully phased in. These are dollars that otherwise would be available to get average teacher pay for North Carolina teachers to the national average, boost investments in the state’s education pipeline (e.g. eliminate Pre-K waitlists, funding for classroom textbooks, etc.) and other public services. The constrained revenue picture as a result of costly tax cuts in recent years makes such opportunities merely wishful desires. And despite recent news of expected better-than-projected revenue for this current fiscal year, this does not mean we have adequate revenue to meet the needs and priorities of a growing state.

State leaders have expressed a desire to pursue more tax cuts that will further reduce available revenue and that will further make providing teachers a meaningful pay raise impossible – unless significant funding cuts are made to other areas of the state budget. The reality is that tax policy decisions in recent years and a desire to continue this tax-cut approach makes providing North Carolina teachers a meaningful pay raise fiscally unsustainable and unlikely to happen.

NC Budget and Tax Center

Revenue is up but North Carolina still falls short

Revenue remains up in North Carolina. This isn’t surprising as the national and state economies are growing. Revenue collections are expected to be $237 million above projections for this fiscal year, which is welcome news. However, as previously highlighted, this better-than-anticipated revenue does not mean we have adequate revenue to meet the needs and priorities of a growing state.

Costly income tax cuts enacted in 2013 greatly reduced revenue for public investment – reducing annual revenue by around $1 billon. Last year, state lawmakers passed more tax cuts that, once all tax changes are fully in place, will reduce annual revenue by more than $2 billion. These are dollars that otherwise would be available for public schools, affordable higher education, healthcare services for the elderly and poor, and helping ensure that economic growth extends to rural and distressed communities across the state.

The projected $237 million in better-then-anticipated revenue falls far short of what’s needed to adequately address challenges we face as a state. Getting average pay for North Carolina teachers closer to the national average, reducing Pre-K waitlists that totaled more than 7,200 children last year, helping promote economic growth in rural and distressed communities, and improving the states foster care system are among challenges that require additional state funding support. Many other challenges exist – ensuring affordable higher education and a growing elderly population – that have implications on the economic health and overall quality of life for North Carolinians.

While better-than-anticipated revenue is welcome news, such news does not serve as validation of costly tax cuts passed in recent years. Nor does this news mean that North Carolina is positioned for broadly shared economic prosperity in the years ahead. Rather, concern about whether our state will truly be able to keep up with the needs in a growing state that seeks to remain competitive and an attractive place to live should continue.

Commentary

Powerful new report: State tax cuts aren’t what produces job growth

The wonks at the Center on Budget and Policy Priorities are out with a new report that, once again, derides the central premise  of the “economic development” strategy being pursued by Governor Pat McCrory and the General Assembly.

Here’s the opening to “State Job Creation Strategies Often Off Base”:

To create jobs and build strong economies, states should focus on producing more home-grown entrepreneurs and on helping startups and young, fast-growing firms already located in the state to survive and to grow ? not on cutting taxes and trying to lure businesses from other states.  That’s the conclusion from a new analysis of data about which businesses create jobs and where they create them.

The data show that:

  • The vast majority of jobs are created by businesses that start up or are already present in a state — not by the relocation or branching into a state by out-of-state firms. Jobs that move into one state from another typically represent only 1 to 4 percent of total job creation each year, depending on the state.  Jobs created by out-of-state businesses expanding into a state through the opening of new branches represent less than one-sixth of total job creation.  In other words, “home-grown” jobs contribute more than 80 percent of total job creation in every state.
  • During periods of healthy economic growth, startups and young, fast-growing companies are responsible for most new jobs.  During the Internet-driven boom of the late 1990s and early 2000s, for example, startup firms (those less than one year old) and high-growth firms — which are likely to be young — accounted for about 70 percent of all new jobs in the U.S. economy.  Firms older than one year actually lost jobs on average; any new jobs they created were more than offset by jobs they eliminated through downsizing or closure.  In short, startups and young, fast-growing firms are the fundamental drivers of job creation when the U.S. economy is performing well.

State economic development policies that ignore these fundamental realities about job creation are bound to fail.  A good example is the deep income tax cuts many states have enacted or are proposing.  Such tax cuts are largely irrelevant to owners of young, fast-growing firms because they generally have little taxable income.  And, tax cuts take money away from schools, universities, and other public investments essential to producing the talented workforce that entrepreneurs require.  Many policymakers also continue to focus their efforts heavily on tax breaks aimed at luring companies from other states — even though startups and young, fast-growing firms already in the state are much more important sources of job creation.”

If only our state policymakers would pay attention and abandon their archaic and failed , tax cuts uber alles approach to the economy, North Carolina might really be making some hay. Unfortunately, that clearly is not the case.

Click here to read the entire report.

NC Budget and Tax Center

There’s a reason providing teachers a meaningful raise is seen as unrealistic

State Superintendent of Public Instruction June Atkinson recently proposed a 10 percent pay increase for public school teachers. In response, NC House Speaker Moore stated that he doesn’t think that’s a realistic goal because North Carolina can’t afford the price tag. Speaker Moore says he believes we must pay our teachers more than we do, but that this should be done in a responsible way.

The requested pay increase comes as North Carolina ranks among the very bottom of states for average teacher pay. State funding for pay increases in recent years has largely targeted early-career teachers, leaving more experienced educators wondering if they will ever get a meaningful pay increase.

The reason providing teachers a 10 percent pay increase is deemed a hefty, unrealistic task by state leaders is clear – costly tax cuts ushered through by state leaders in recent years. Tax cuts included in the current two-year budget, once fully phased in, will reduce annual state revenue by more than $1 billion. When you include the cost of the tax cuts passed in 2013, the combined reduction in annual revenue increases to more than $2 billion. These are dollars that would otherwise be available under the old tax code in place prior to the tax changes. The tax cuts largely benefited the already well-off and profitable corporations and shifted the tax load to low- and middle-income families and individuals.

State leaders have proven their ability to push through their priorities in recent years and tax cuts have certainly been a major priority. The self-inflicted challenge that North Carolina faces – providing all teachers a meaningful raise – is a result of state leaders’ dogged pursuit of more and more tax cuts. This challenge is not happenstance, but rather a consequence of choices made by state lawmakers.

North Carolina’s ability to make public investments that are crucial to promoting widespread prosperity and that support a growing economy requires a tax system that raises adequate revenue to meet the growing needs of our state. Tax cuts passed in recent years will increasingly challenge our ability to strengthen the foundation that ensures opportunity for all North Carolinians – quality public schools, affordable higher education, and healthy and vibrant communities, for example.

What is not realistic is for state lawmakers to continue cutting taxes, which reduces revenue for public investments, and expect our state to be able to compete for good-paying jobs and remain an attractive state to raise a family and operate a business. All North Carolinians lose as we are taken down this dangerous path of cutting taxes at the expense of investing in our people and our future.