As this week’s edition of The Weekly Briefing made plain, state leaders remain absurdly out of touch with the economic reality on the ground in North Carolina. The following announcement from colleagues at the N.C. Justice Center highlights this problem once more

Jobless workers struggle even as Division of Employment Security announces $600 million in tax cuts to employers
Employment remains more than 4 percentage points below pre-recession levels, according to October data 

Jobless workers continue to struggle with an economy that fails to provide enough jobs and an unemployment insurance system that is ill-equipped to deliver partial wage replacement to stabilize the economy, even as North Carolina’s Division of Employment Security announced $600 million in tax cuts to employers.

Employment levels as a share of the population remains more than 4 percentage points below pre-recession levels, according to today’s announcement on labor market conditions for October 2015.

Last month’s state employment rate was 5.7 percent, the same level as one year ago. However, the number of unemployed North Carolinians has increased over that period by 11,591 jobless workers. The national unemployment rate was 5.0 percent in October, dropping by 0.7 percentage points over the year.

“North Carolina should not be issuing tax cuts for employers when we have failed to reach what are generally agreed to be safe levels for our state’s Unemployment Insurance Trust Fund,” said Alexandra Forter Sirota, Director of the Budget & Tax Center, a project of the North Carolina Justice Center. “Instead, our state policymakers need to re-balance their approach to ensure the system can deliver partial wage replacement to jobless workers and in so doing serve as a stabilizing force in the economy.”

Important trends in the October data also include:

  • The percent of North Carolinians employed is still near historic lows, and below the nation. October numbers showed 57.5 percent of North Carolinians were employed, leaving the state well below employment levels commonplace before the Great Recession. In the mid-2000s, employment levels reached a peak of about 63 percent. The percent of North Carolinians with a job remains below the national average, as it has been since the Great Recession.
  • There are still more North Carolinians out of work than before the Great Recession. There were more than 270,000 North Carolinians looking for work in October, almost 50,000 more than before the Great Recession.
  • North Carolina’s unemployment insurance system only provided temporary wage replacement to 22,545 North Carolinians. The number of jobless North Carolinians receiving unemployment insurance has dropped precipitously since 2013, ranking us 49th in the country on this measure and hindering the ability of the program to serve as a stabilizing force in the economy.

“North Carolina’s labor market is still too weak to ensure jobs are available for all those who seek employment,” Sirota said. “This affects all of us, as wages are falling short of the growth needed to boost the economy in the immediate and long-term.”

For more context on the economic choices facing North Carolina, check out the Budget & Tax Center’s weekly Prosperity Watch platform.

NC Budget and Tax Center

A report by the Tax Foundation, funded by the NC Chamber Foundation, gets it wrong in its assessment of the impact of tax changes made by state lawmakers in recent years. The plethora of charts and figures created by the Tax Foundation fails to detail the important loss of revenue that has hindered the state’s pursuit of important foundation-building for a strong economy—investments in schools, research and development, entrepreneurship and innovation. The assessment also masks the shift in tax responsibility to the majority of North Carolinians and away from the wealthy and profitable corporations.

Proclaiming that the state’s tax climate has leapt from one of the worst to now one of the best largely as a result of tax cuts provides no insight regarding the fiscal and economic health of North Carolina. Just as a good accountant understands that positive business earnings don’t equate to a financially sustainable enterprise, this reality also applies to tax policy and the economy. In fact, the Tax Foundation’s rankings reflect little more than the tax policies they and their corporate funders want to see rather than a robust body of evidence about what economies need to prosper. In fact, the pursuit of low-taxes has not been demonstrated to consistently deliver the economic returns promised.

Below are three notable takeaways from the Tax Foundation’s assessment of tax changes passed by state lawmakers since 2013. Read More

NC Budget and Tax Center

The latest quarterly revenue report by the General Assembly’s Fiscal Research Division (FRD) highlights that tax cuts do not explain the better-than-projected income tax revenue collections for the most recent fiscal year 2015.

According to FRD, two factors likely affected income tax collections for the most recent fiscal year.

  • Corporate taxable profits accelerated as wages remained low and write-offs on losses from the recession dwindled. This pushed collections 21.2% above forecast expectations.
  • Timing in personal income tax collections from changes enacted beginning with the 2014 tax year meant lower monthly withholding revenue – but higher final payments and smaller refunds in April. The forecast didn’t fully capture those dynamics leading to a shortfall the previous fiscal year and a surplus in FY 2014-15.

There’s evidence to support these two points. Corporate profits are at a record high as the economy recovers in part due to a steady increase in productivity. Meanwhile, wages for workers have remained stagnant – an indication that workers have not participated in the economic gains during the ongoing recovery. Furthermore, FRD notes that tax changes in recent years made it difficult to determine the timing of income tax revenue collections, resulting in a projection that was well below actual collections for FY 2014-15. Read More


Here’s the deal on the subject of expanding the sales tax base to include services as Gov. McCrory and the General Assembly have decided to do: It actually can be a good idea, but only if it’s paired with a plan to lower the overall sales tax rate and provide targeted tax cuts (like the Earned Income Tax Credit) to lower income people.

Unfortunately and remarkably, however, McCrory and state lawmakers are simply ignoring this simple truth and instead pairing the sales tax expansion with personal and corporate income tax cuts that overwhelmingly favor the wealthy. As Chris Fitzsimon pointed out this afternoon:

“Supporters of the new sales tax plan claim that it is not a tax increase, that it will be offset by a reduction in the personal income tax rate. But that’s not true for the folks at the bottom of the economic ladder who will receive very little, if anything, from the income tax cut.

Millionaires by the way will receive a $2,000 break and that’s on top of the windfall they received in the 2013 tax cut package.

Low income folks won’t be so lucky.

You might be wondering how this regressive tax scheme passed the General Assembly and what people said it about it as it made its way through the legislative process.

It never went through any committee. It appeared out of nowhere in the final budget agreement and questions about the formula and how to distribute the money in future years were not answered

Proposals to restore the state Earned Income Tax Credit to help low wage workers and their families that could offset a sales tax hike have also been repeatedly ignored.

There are plenty of reasons why the budget unveiled by House and Senate leaders this week takes North Carolina in the wrong direction.

One big one is that it raises taxes on people who can least afford to pay more.”

Meanwhile, that sound of crickets chirping? That’s the response to the new plan from the far right think tanks that have lectured us for years about the supposed evil of raising taxes in North Carolina. By all indications, they go along with the Governor’s bizarre take that raising taxes on people at the bottom is okay so long as the result is to reduce state revenue overall. Talk about your worst of all worlds outcomes.

NC Budget and Tax Center

As part of ongoing negotiations to produce a state budget, state lawmakers would like to provide more tax cuts to North Carolina taxpayers. This tax proposal, while unclear in the details (is it another reduction to the already low 5.75 percent personal income tax rate?), would offset the increase in various DMV fees included in the budget passed by House members.

A refundable state Earned Income Tax Credit (EITC) is a great way for state lawmakers to fulfill their desired goal of ensuring working families aren’t paying more as a result of their budget choices. The EITC provides a modest boost to the wages of low- and moderate-income workers, which will help offset additional costs resulting from an increase in DMV fees. Prior to its elimination in 2014, more than 927,000 North Carolinians claimed the state EITC, with working families in each of the state’s 100 counties benefiting from the tax credit.

State lawmakers’ reported agreement to provide $110 million in tax cuts to offset the DMV fee hikes is close to the value of the state EITC. For FY 2013, prior to its elimination, the state EITC cost around $101 million, which is less than the tax cut target agreed to by state lawmakers. The EITC is the best targeted tool to address the upside-down nature of the state’s tax code. Better than an increased standard deduction, the tax credit is proven by years of experience and research to effectively target working families who earn low wages so that they can make ends meet, support their children’s healthy development and boost the economy.

If state lawmakers are serious about correcting the imbalance in the state’s tax code, a refundable state EITC is the most effective way to support children and working families and help spur economic activity in local communities across the state.