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New from the good people at the Budget and Tax Center:

Five years into the official economic recovery, there were signs of a strengthening recovery in North Carolina albeit uneven and insufficient to deliver improved economic well-being broadly. The result is far too many North Carolinians remain without jobs or working for low-wages. Poverty levels have remained high and inequality has grown, both contributing to a less sustainable economy in the long-term. Here are 12 charts that tell the story of North Carolina’s economy in 2014.

Click here to see all twelve.

Commentary, NC Budget and Tax Center

The ballooning cost of recent state tax cuts is one of the key stories of 2014. While state leaders argued over how to pay for increasing teacher salaries, it was easy to forget that the 2013 tax cut package was a huge part of the reason that funds were so hard to come by. The 2013 tax cuts, which largely went to the wealthiest North Carolinians, are forcing us to make unnecessary choices between funding schools or roads, healthcare or economic development, local governments or state services. It didn’t have to be this way and, as the charts presented here clearly show, the costs of the 2013 tax cuts are becoming increasingly clear.

Many proponents argued that the 2013 tax cuts would stimulate new economic growth and, as a result, the cost of reducing rates would be largely offset because there would be more economic activity to tax. The idea that tax cuts will actually increase revenue is based on a simple intuition popularized by Art Laffer. Laffer’s thought experiment holds that lowering the cost of doing business will cause people to invest and spend more, so the total economy will grow, which will ultimately result in government collecting more revenue. Like many exercises in theoretical economics, the “Laffer Curve” is just a mathematical equation. It looks nice on a napkin, and has an pleasantly simple logic, but the real world is often allergic to this kind of treatment and refuses to behave as theorists’ models expect. Unfortunately, the consequences of putting faith in the Laffer Curve are anything but theoretical. As this economic experiment on North Carolina continues, the results are not looking good for the subject.

2014 End of Year Charts_tax cuts dig a hole

While sober analysis always showed that the 2013 tax cuts would reduce revenues, the hole keeps getting deeper every time we look at it. As can be seen in the chart above, initial estimates projected a roughly $500 million reduction in state tax revenues for the 2014-15 fiscal year. Estimates released this month have the cost rising to almost $900 million and, according to our analysis, the bill could top $1 billion. Thus far this fiscal year, actual tax collections have been lower than was expected even with the cost of the tax cut included. The December state revenue update shows that we are $190 million short of projections. We will know the real fiscal impact after sales taxes from the Christmas shopping season known and income tax returns are filed next year, but all indications to date are that the 2013 cuts will blow an enormous hole in current and future state budgets.

2014 End of Year Charts_underfund the recovery

The result of the ballooning revenue shortfall, is that state spending has not recovered to pre-recession levels. When the economy collapsed in 2008, it dramatically undermined state revenues, forcing a series of unusual measures to try to fill the gap. Under normal conditions, the return to positive economic growth brings in more revenue, allowing departments and divisions in state government to address needs they had put off during the squeeze. As can be seen above, this is the pattern for each of the last three recessions dating back to the early 1980’s. Each recession initially forced North Carolina to spend less than was anticipated when revenues fell, but spending bounced back within a few years allowing North Carolina to get back to business. Policy choices in the recent recovery are a departure from previous budgetary practice. We have usually seen reduced state spending during the initial downturn, followed by accelerated investing during the recovery to make up for lost ground and restore the state’s public service infrastructure. We are seven years removed from the onset of the Great Recession and, because of the 2013 tax cuts, state revenues remain roughly 10 percent below their pre-recession levels.

All of this means undercutting the future of North Carolina. The state still has a backlog of expenditures that were put off during the recession, positions unfilled, buildings overdue for repair, roads and bridges that need fixing or expanding, local governments who have lost state support for key services, and much more. We also face an increasingly competitive global marketplace. Many of the people who lost their jobs during the recession still need help retooling their skills and the challenge of preparing children to survive in the 21st century economy keeps getting more complex. As the legislative session gets started in 2015, remember that the choice to reduce taxes on the most fortunate among us is a major reason that key investments for the rest of North Carolina are not being made.

Commentary

taxcutBThere have been multiple stories in recent days detailing the destructive impact that conservative budget and tax policy is having on essential public structures and services in North Carolina. During a time in which most states are rebounding and expanding public investments, North Carolina continues to muddle along and scrimp by like one of Art Pope’s weathered, low-rent chain stores.

Just yesterday, Chris Fitzsimon reported on the disgraceful situation in the Rockingham County public schools (home to Senate leader Phil Berger) while Cedric Johnson highlighted the self-inflicted budget crisis afflicting our courts system.

Now, this morning, comes an excellent editorial that sums up the absurd situation and the driving force behind it: destructive and unnecessary tax cuts. As this morning’s lead editorial in Raleigh’s News & Observer explains:

“The General Assembly’s Republican leaders appear remarkably calm about what is shaping up to be either a serious budget shortfall or an income tax shock for those who have not had enough state tax withheld.

Tax revenue flowing into the state is running about $190 million below projections following tax cuts that took effect in January. That is worrisome because state spending already is at a spartan level. There’s no slack for filling the budget hole with easy cuts. The state could dip into its rainy day fund (even though it’s not a rainy day), but that simply puts off the budget reckoning for a year.

State Rep. Skip Stam, a Wake County Republican and House speaker pro tem, said the budget shortfall isn’t much given the state’s $21.1 billion budget and the federal government’s spending on North Carolina’s Medicaid and transportation projects. He told Time Warner Cable News, ‘The difference is hardly even a rounding error.’ A rounding error? It seems like more than that to state agencies that are trying to meet the needs of a growing state. Their budgets have been tightened first by the Great Recession and then by Republicans taking control of the General Assembly in 2011.”

The editorial concludes this way:

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NC Budget and Tax Center

The Charlotte Observer reports of the strain on the state’s court system in the wake of state budget cuts in recent years. The state’s court system is expected to run out of funding for juror pay by April of next year, the Charlotte Observer highlights.

The ability of the state’s court system to operate effectively has been increasingly challenged amid cuts in state funding over the years. While other states have adopted technology and incorporated electronic filing systems, North Carolina continues to use a paper-based system, which slows down the judicial process. The time taken to complete civil and criminal cases has increased in recent years, the Charlotte Observer article notes, resulting in a judicial system that is inefficient, more costly, and less customer-friendly.

State lawmakers quoted in the article note their unawareness of the pending funding shortage for juror pay and state that the General Assembly is being asked for money that it doesn’t have. This is increasingly clear as stories throughout the state have highlighted yet another announcement that the state’s revenue collections are below projections.  Official estimates now put the revenue shortfall for the current fiscal year at $190 million.

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Commentary

Tillis_McCrory_Berger-400It seems like a long time ago, but it was just the beginning of last year that North Carolina’s newly-elected governor promised state “tax reform” that would be “revenue neutral.” In other words, while the Guv was promising tax cuts, he was also calling for tax modernization that would enhance revenues in other areas — thus assuring that government would have the money it needed to fund core services in a fast-growing state. So, while it was always clear that a McCrory plan would enact regressive changes that favored the well-off, there was at least some hope that the state could at least avoid going backwards in the provision of basic services that undergird the middle class

We all know what happened next. Legislative leaders deep-sixed McCrory’s revenue neutrality idea in a New York minute and, instead, quickly acted to make big tax cuts for the wealthy and profitable corporations a vehicle for slashing core services like education, environmental protection and the courts system.

Now, less than a year since the Tillis-Berger tax package went into effect (with full McCrory approval), the chickens are coming home to roost. As this Public News Service story highlights this morning, 2015 is almost certain to bring North Carolina yet another damaging and wholly unnecessary budget crisis: Read More