Commentary

Day Two of “Altered State: How 5 years of conservative rule have redefined North Carolina”

altered-state-banner

In case you missed it, be sure to check out today’s second installment in our new special report: “Altered State: How 5 years of conservative rule have redefined North Carolina.” “Public investment falls, tax responsibility shifts” is written by Alexandra Sirota of the North Carolina Budget and Tax Center and it documents the amazing shift that has occurred in how North Carolina funds government — a shift that has been engineered by the state’s conservative political leadership. Here’s the opening:

“Public investments are essential building blocks of long-term economic growth and shared prosperity. Decades ago, North Carolina diverged from its Southern neighbors by investing in good roads, quality public schools and universities and early childhood programs.

Since the official recovery began in 2009 — when rebuilding from the Great Recession would have been possible — state lawmakers have turned away from that tradition, choosing to sharply limit public spending in favor of tax cuts. Overall, state support for services in the 2016 fiscal year will be nearly a full percentage point below historic investment levels as a share of the economy.

"State spending as part of the economy — measured by state personal income — has consistently fallen in the past few years."— "A Summary of the Fiscal Year 2015–2017 Budget," BTC Reports, October 2014 (Source: N.C. Budget & Tax Center)

“State spending as part of the economy — measured by state personal income — has consistently fallen in the past few years.”— “A Summary of the Fiscal Year 2015–2017 Budget,” BTC Reports, October 2014 (Source: N.C. Budget & Tax Center)

In fact, state spending as a share of the economy — measured by state personal income — has fallen every year since 2009. The new budget continues this trend, and caps off the only period in more than four decades in which state spending declined as a part of the economy for more than five straight years.

The tax code has been radically transformed since 2010 in a way that makes adequate funding 0f core public services more difficult.

Click here to read the entire essay. And be sure to check back at the Altered State website tomorrow morning and each day through December 21. We’ll be rolling out new stories over the next two and a half weeks on everything from taxes to public education to environmental protection.

Commentary

NC announces $600 million in new business tax cuts even as jobless struggle

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

Tax Foundation gets it wrong with its assessment of recent tax changes in NC

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

Claim justifying more tax cuts not supported by facts

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

Commentary

Crickets chirping: The right falls silent as McCrory and G.A. enact regressive tax hikes

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.